JPMorgan Chase & Co. (JPM) has consented to pay $995M to settle claims brought by Ambac Financial Group claiming that the insurance company was fooled into insuring hundreds of mortgage bonds that were backed by poor quality loans. As part of the settlement, Ambac will withdraw its opposition to a $4.5B deal reached between the firm and investors, such as Pacific Investment Management Co. (PiMCO) and BlackRock Inc (BLK), over faulty home loans.
One of Ambac’s units was the number two largest bond insurer in the world eight years ago, when the growing number of mortgage defaults caused it to become inundated with claims. The settlement with JPMorgan will conclude two lawsuits over the quality of loans backing mortgage bonds that were sold by Bear Stearns & Co., which JPMorgan purchased in 2008. It also resolves the insurer’s efforts to recover payments of principal plus interest on approximately $3.3B of nearly a dozen MBS trusts sponsored by Bear Stearns unit EMC Mortgage LLC.
According to Bloomberg, this latest settlement opens the door for a judge to approve the settlement between JPMorgan and institutional investors.
Also this week, in a separate deal, JPMorgan said it would pay the remains of Lehman Brother Holdings Inc. $1.42 B in cash to resolve most of the failed bank’s $8.6 lawsuit over claims that the former illegally withdrew billions of dollars from Lehman before its demise. It also settles JPMorgan’s counter suit and Lehman’s claims related to the latter’s closeout of thousands of derivatives contracts after the bank failed.
The resolution comes a few months after a federal judge ruled on JPMorgan’s behalf, finding that the bank didn’t abuse the leverage it had as Lehman’s main clearing bank by compelling the latter to give over more collateral before its demise. Lehman sued in 2010 claiming that JPMorgan did that to establish an $8.6B slush fund.
JPMorgan in Pact With Ambac, Step to $4.5 Billion Mortgage Deal, Bloomberg, January 26, 2016