Bank of America Returns to a Familiar Battlefield

Bank of America’s latest SEC filing shows another big battle brewing with monoline insurer Ambac

Mar 2, 2014 at 8:00AM


Things have been looking up recently for Bank of America Corp. (NYSE: BAC), particularly where litigation is concerned. The recent court approval of the lion's share of its 2011 $8.5 billion settlement with a slew of institutional investors was a huge win, as was the court's refusal to allow AIG to drag the process out further.

The bank's recent 10-K filing with the Securities and Exchange Commission, however, shows that the legal fracas over toxic mortgages pumped out by Countrywide in years past hasn't died down just yet. Ambac Financial (Nasdaq: AMBC), recently emerged from bankruptcy, is looking for more than $2.5 billion from B of A for damages related to junk loans underlying disintegrating mortgage bonds.

Ambac, which insured these mortgages, has been paying out on these loans – and it wants its money back, not only for what it has already forked over, but also for "future claims it has paid or claims it will be obligated to pay under the policies, increasing over time as it pays claims under relevant policies, plus unspecified punitive damages."

Echoes of MBIA
This situation stirs up memories of the infamous Bank of America-MBIA (NYSE: MBI) fight, which dragged on for years with the two engaging in a series of skirmishes that bordered on the bizarre. Finally, B of A and the struggling monoline insurer settled last May, for $1.7 billion – a welcome and much-needed infusion of cash for MBIA, which was tottering on the brink of extinction.

Mortgage-bond insurers have been suing big banks ever since the financial crisis, and B of A, with the acquisition of subprime-lending mill Countrywide, has been a prime target. In addition to the MBIA settlement, B of A also settled up with Syncora Holdings in July 2012, paying $375 million to put paid to claims by that company. But Bank of America isn't the only one paying out: JPMorgan Chase & Co. (NYSE: JPM) has just paid Syncora an undisclosed settlement amount as well, settling all claims against the bank by the monoline, and allowing the insurer to "remove substantial doubt" regarding its future survival.

What will Bank of America do now?
This disclosure was simply part of a legally required regulatory filing, and not a direct comment upon the pending situation by B of A, so the bank may not be planning any specific action in the near future. JPMorgan's settlement with Syncora, along with the fact that the Ambac suit is now out in the open, may put pressure on Bank of America to settle this issue, however – particularly by the bank's investors, who must surely be tiring of the never-ending stream of mortgage troubles emanating from Bank of America.

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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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