JPMorgan to pay Ambac $995 million to settle RMBS-related claims

January 26, 2016 01:15 PM

Bond insurer Ambac Financial Group Inc said JPMorgan Chase & Co will pay $995 million to settle disputes related to residential mortgage-backed securities.  

The settlement will have a positive impact on Ambac's fourth-quarter operating results and its claims paying resources, Chief Executive Nader Tavakoli said in a statement.

"Today's announcement validates our resolve and reinforces our confidence in our remaining RMBS-related cases," Tavakoli said.

The settlement comes two weeks after Reuters reported that three of Ambac's top 10 shareholders were calling on Tavakoli to step down, claiming that he was slow to settle $4 billion in insurance claims and lawsuits against JPMorgan, Countrywide Home Loans Inc and Bank of America Corp.

Ambac has publicly resisted calls to speed up its payment of insurance claims, citing concerns that it wouldn't be able to meet its liabilities that extend out to 2054.

The company has said that any change in the payouts schedule is solely at the discretion of its regulator, the commissioner of insurance of State of Wisconsin.

Ambac said the settlement also provides for the withdrawal of its objection to JPMorgan's $4.5 billion RMBS settlement with RMBS trustees.

JPMorgan said the agreement would not have a material effect on its first-quarter earnings. 

The settlement underscores how Wall Street is still shaking off the legacy of the U.S. subprime crisis, during which mortgages were sold to people who could not afford them and then repackaged for investors without an adequate explanation of how risky they were.

Ambac sued Bank of America in 2014 to recoup hundreds of millions of dollars of losses from insuring securities backed at least in part by risky mortgages from the bank's Countrywide Home Loans unit.

Goldman Sachs Group Inc said earlier this month that it would pay regulators over $5 billion to settle claims that it misled mortgage bond investors during the financial crisis.

Ambac shares were up 16% at $13.87, while those of JPMorgan were up 2.4% at $56.99 in afternoon trading.

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