JPMorgan to Pay Ambac $995 Million to Settle RMBS

By Diane Ariyo,
Money & Investing Writer
jpmorgan

Ambac Financial Group, Inc (NADAQ: AMC) also known as Ambac is an American holding company (holds other companies outstanding stock).

The company was originally called the American Municipal Bond Holding Company and was founded in 1971 with a headquarters in New York City.

The company is public and its subsidiaries provide financial guarantee products and other financial services to clients all over the world.

JP Morgan and Chase Company (NYSE: JPM), commonly referred to as JP Morgan Chase, is a public American banking and multinational holding company.

It is the largest bank in America and has a headquarters in New York. The company has total assets worth $2.6 trillion.

According to the Forbes Global 2000, the company is also the sixth largest public company in the world. JP Morgan and Chase Company was formed in 2000 when Chase Manhattan Corporation merged with JP Morgan and Company.

It is one of the Big Four banks in the United States. The other three banks are Bank of America (NASDAQ: BAC), Wells Fargo (NASDAQ: WFC), and Citi Bank (NASDAQ: C).
As of Oct. 2011, according to Bloomberg, JP Morgan Chase passed Bank of America as the largest American bank by assets.

The investment banking division, asset management division, private banking division, private wealth management division, and treasury and securities divisions, use the company’s JP Morgan brand.

While activity relating to trust law within private banking and private wealth management is done under JP Morgan Chase Bank NA- the actual trustee.

On Jan. 26, Ambac Financial Group said that JP Morgan and Chase Company will pay the company $995 million in cash to settle disputes and litigation related to mortgage backed securities.

This agreement between the two parties is a settlement regarding claims related to residential mortgage backed securities (RMBS) transactions insured by Ambac.

According to Ambac’s Chief Executive, Nader Tavakoli, the settlement will have a positive impact on the company’s fourth quarter operating results and its claims paying resources stating “[this] announcement validates our resolve and reinforces our confidence in our remaining RMBS-related cases.”

This settlement took place two weeks after Reuters reported that three of Ambac’s top 10 shareholders requested that the current Chief Executive step down from his position because they believed that he was too slow to settle $4 billion in lawsuits and insurance claims against JPMorgan, Bank of America, and Countrywide Home Loans Inc. (NYSE: CHL).

Ambac Financial Group has resisted calls to hasten its payment of insurance claims because it believed that it would not be able to meet its liabilities that extend as far out as 2054.

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

The company has also said that the settlement also provides for the withdrawal of its objection to JP Morgan’s $4.5 billion residential mortgage backed securities settlement with residential mortgage backed securities trustees.

While the settlement is expected to have a positive impact on at least one of Ambac’s quarters and a positive impact on claims paying resources, it is not expected to have a material impact on JP Morgan’s first quarter.

And despite the positive impact of the settlement on Ambac, the settlement underscores how Wall Street is still facing the negative effects of the United States subprime crisis.

During this crisis, mortgages were sold to people who could not afford them and then repackaged to for investors without a proper explanation for how risky they actually were.

A version of this article appeared in the Tuesday, February 9th print edition.

Contact Diane at
diane.ariyo@student.shu.edu

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