Ambac Financial Sues Credit Suisse Over Mortgage Security
January 12 2010 - 5:48PM
Dow Jones News
Ambac Financial Group Inc. (ABK) filed a lawsuit Tuesday against
Credit Suisse Securities LLP, a unit of Credit Suisse AG (CS,
CSGN.VX), asking that the Swiss banking giant make good on a
mortgage-backed security Ambac insured that has racked up millions
of dollars in claims.
In the suit filed in New York State Supreme Court, Ambac charged
that it provided insurance on a $170 million security, packaged by
Credit Suisse and affiliate DLJ Mortgage Capital in March 2007,
based on flawed information they provided on the 2,500 home-equity
loans contained in the security.
After more than 30% of the original loan balance went into
default and Ambac paid around $44 million in claims on the
security, according to the lawsuit, Ambac examined a sample of the
loans and found that 80% breached the representations made by DLJ
and Credit Suisse. Ambac is asking for compensatory and punitive
damages and lawyers fees.
So far, DLJ and Credit Suisse have refused to make good on any
of the $83 million in loans Ambac has challenged, the suit
said.
Ambac's review found various problems, including that "fraud by
borrowers, brokers and/or originators was so rampant that Credit
Suisse either knew or recklessly disregarded its prevalence," the
lawsuit alleged.
Credit Suisse spokesman Bruce Corwin said Tuesday in response:
"We believe this lawsuit is without merit and we intend to defend
ourselves vigorously."
The lawsuit is the latest of several that have been filed by
bond insurers against investment banks that packaged
mortgage-backed securities that defaulted at high rates, putting
the insurers in line to cover losses on loans that they say should
never had been written.
In its third-quarter earnings report filed with the Securities
and Exchange Commission, Ambac said it has run into this problem
with second-lien mortgage-backed securities before, and issuers
have generally resisted making good on bad loans by replacing them
or covering the losses. This is Ambac's second such suit, and it
said in its earnings report it expects to file more such
lawsuits.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
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