JPMorgan Chase agreed to pay almost $1 billion to resolve claims by Ambac Financial that it was duped into insuring mortgage bonds backed by shoddy loans, clearing the way for approval of a larger settlement over similar allegations.
Ambac said Tuesday in a statement that the bank will pay $995 million to end two lawsuits the New York-based insurer filed in New York state court in 2011 and 2012 over the quality of loans underlying mortgage bonds sold by Bear Stearns, which was bought by JPMorgan in 2008.
As part of the deal, Ambac agreed to drop its objections to a $4.5 billion settlement between JPMorgan and institutional investors including BlackRock and Pacific Investment Management over claims of faulty home loans, leaving only one objector to the pact. Ambac's settlement clears the way for a judge to approve the larger deal, Bloomberg Intelligence analyst Elliott Stein said.
The settlement with JPMorgan was a "bit of a surprise" as many investors had been focused on whether Ambac would be able to resolve similar claims against Bank of America, Mark Palmer, an analyst with BTIG in LLC in New York, said in a note to investors.
The question now is whether the balance of power has shifted in Ambac's talks with Bank of America and whether the JPMorgan settlement will lead to a resolution of that case, Palmer said.
The company's Ambac Assurance unit was the second-largest bond insurer before the 2008 financial crisis, when mounting defaults on mortgages swamped the company with claims.
The cases are Ambac Assurance v. EMC Mortgage, 651013/2012 and 650421/2011, New York State Supreme Court, New York County (Manhattan).
