Bank of America has agreed to pay $1.84 billion to the insurer Ambac to settle a long-running dispute over mortgage-backed securities from Countrywide, the mortgage giant that BofA bought in 2008.
The agreement will "resolve all pending Ambac lawsuits" and claims on the issue against Bank of America, the bank said in a securities filing on Friday, noting that Ambac was seeking more than $3 billion in damages.
Ambac, which provided insurance policies for Countrywide's securities, alleged the mortgage lender misrepresented the quality of the loans it was making in the runup to the crisis. The insurer sought to put Bank of America on the hook for payments it had to make for mortgage loans that went under.
The two sides
The settlement closes another chapter on what quickly proved to be an
In its filing, Bank of America said it had previously accrued for much of what it's paying as part of the settlement. The bank will, however, record a pretax expense of $354 million in the third quarter, or 3 cents per share.
The news brings some benefits to Bank of America despite the earnings hit, RBC Capital Markets analyst Gerard Cassidy wrote in a note to clients.
"We view this news in a neutral-to-positive light as these lawsuits are now behind the company, and company resources needed to address these suits can be put to better use, moving forward," Cassidy wrote.
The bank declined to comment further.
Ambac Financial Group said in a news release that the settlement "materially exceeds" the recovery amount it had recorded in its earnings during the second quarter. The insurer said it will record a gain of about $390 million over the next two quarters.
Ambac's stock was up about 14% to $14.55 a share late Friday morning.
