Bankrupt bond insurer Ambac Assurance Corp. has ended its lawsuit against Credit Suisse Group AG over misrepresentations and contract breaches on mortgage-backed securities that Ambac insured in 2007.
According to a court filing in the New York State Supreme Court on Friday, the two sides agreed to discontinue the litigation. As of December the case was still in the discovery stage. No further information was made public.
An Ambac spokesperson would not provide further details, and a Credit Suisse spokesperson declined to comment.
The lawsuit was filed in 2010 against Credit Suisse and its affiliate, DLJ Mortgage Capital, by Ambac , which claimed it was fraudulently induced to participate in a transaction involving more than 2,000 residential mortgage loans.
At the time of the filing, Ambac said it had made over $44 million in claims payments on more than $53 million of defaulted loans and expected to pay “tens of millions of dollars” more.
“While most of the defendants in litigation brought by bond insurers over breaches in representations and warranties (R&W) in the mortgage loans sold into securitizations have demonstrated varying degrees of reluctance to settle those lawsuits, the one that has been consistently identified as the most unwilling to even negotiate has been Credit Suisse,” said BTIG analyst Mark Palmer.
For that reason, he believes the action should be viewed as a very encouraging development for Assured Guaranty and MBIA.
Both bond insurers have similar ongoing suits against Credit Suisse and DLJ Mortgage. Assured filed suit in October 2011, claiming breaches of contract in six securitizations, finding 7,338 defective mortgage loans with an aggregate principal balance of $1.8 billion. It did not provide an exact figure for the claims it had paid.
MBIA filed a similar suit two years earlier over thousands of residential mortgage loans that defaulted, on which MBIA has paid more than $386 million in claims, according to an amended complaint filed on Jan. 30.
Friday’s action comes less than a month after U.S. District Judge Jed Rakoff’s ruling in favor of Assured Guaranty in its mortgage putback lawsuit against Flagstar Bank. Moody’s Investors Service called the ruling a credit positive for other financial guarantors because it could strengthen their negotiating positions in ongoing R&W litigation.
Friday’s Credit Suisse negotiation may be an indication that Rakoff’s ruling is already affecting “internal calculations of R&W defendants as they evaluate the best approach for addressing their liability,” according to Palmer.
Ambac has at least five other ongoing R&W lawsuits, including two brought against JPMorgan.
Assured and MBIA have at least seven similar suits, in addition to the ones against Credit Suisse.
Friday’s discontinued lawsuit is Ambac Assurance Corporation versus DLJ Mortgage Capital Inc. and Credit Suisse Securities (USA) LLP, 600070/2010.