At long last, Ambac Financial Group’s (NYSE:AMBC) ongoing legal battle with Bank of America (NYSE:BAC) has come to a resolution. Apparently, Ambac had brought litigation against Bank of America due to issues related to the 2008 mortgage market crash. Finally, those lawsuits have been settled. Now, AMBC stock is flying higher as a result.
Let’s start with the basics. Headquartered in New York, Ambac is a tiny insurer with a market capitalization of more than $640 million. Meanwhile, banking giant Bank of America acquired mortgage lender Countrywide Financial back in 2008.
Countrywide is currently defunct — and we all know how some lenders’ questionable lending practices contributed to the 2008 mortgage market collapse. As the Wall Street Journal politely puts it, residential mortgage-backed securities insured by Countrywide were allegedly “backed by poorly underwritten loans.”
As a result, Ambac Financial Group became embroiled in a protracted legal dispute with Bank of America. Now, though, the market has finally received word of a settlement to end this dispute.
What’s Happening with AMBC Stock?
Relief rallies can be amazing to behold. A case in point is AMBC stock’s more than 10% gain this morning. Clearly, investors are relieved to witness the end of the dragged-out litigation.
This is almost like a David-versus-Goliath story. After all, Bank of America is a much bigger company than Ambac. Yet the company managed to get a sizable $1.84 billion from Bank of America.
Some may view this outcome as a disappointment, as Ambac had reportedly sought over $3 billion in damages originally. Bear in mind, though, that an extended legal battle can be quite expensive. Sometimes, it’s better to just settle for a lesser sum.
At the very least, Ambac CEO Claude LeBlanc seems satisfied with the outcome. “Ambac is very pleased to have reached this settlement with Bank of America,” stated LeBlanc.
AMBC stock traders seem rather “pleased” as well today. At least now, both parties can move on and hopefully put this ugly chapter behind them.
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.