Finally, Ambac Financial Group (NYSE:AMBC) ongoing legal battle with Bank of America (NYSE:BAC) took a resolution. Apparently, Ambac had filed a lawsuit against Bank of America over issues related to the mortgage market crash of 2008. Finally, those lawsuits were settled. Now AMBC stock is skyrocketing accordingly.
Let’s start with the basics. Based in New York, Ambac is a small insurer with a market cap of over $640 million. Meanwhile, banking giant Bank of America acquired mortgage lender Countrywide Financial in 2008.
Countrywide is currently defunct – and we all know how questionable lending practices by some lenders contributed to the mortgage market crash of 2008. As the the wall street journal Politely put it, Countrywide-insured residential mortgage-backed securities would have been “backed by badly underwritten loans.”
As a result, Ambac Financial Group became embroiled in a protracted legal dispute with Bank of America. Now, however, the market has finally learned that a settlement will end this dispute.
What’s going on with AMBC shares?
Relief rallies can be amazing to watch. A good example is the over 10% gain in AMBC stock this morning. Clearly, investors are relieved to see the end of the dragging litigation.
It’s almost like a David versus Goliath story. After all, Bank of America is a much bigger company than Ambac. Still, the company managed to secure $1.84 billion from Bank of America.
Some may consider this outcome a disappointment, as Ambac would have initially sought over $3 billion in damages. Keep in mind, however, that a lengthy legal battle can be quite costly. Sometimes it’s better to settle for less.
At the very least, Ambac CEO Claude LeBlanc seems pleased with the outcome. “Ambac is very pleased to have reached this settlement with Bank of America,” said LeBlanc.
AMBC stock traders also seem rather “satisfied” today. At least now both parties can move on and hopefully put this ugly chapter behind them.
As of the date of publication, David Moadel has not held (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.