more troubles ahead for BAC

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BofA’s $1.6 Billion Deal Ends Assured’s ‘Chinese Water Torture’

Assured Guaranty Ltd. (AGO), the bond insurer that said negotiating with Bank of America Corp. (BAC) was like “Chinese water torture,” soared in New York trading after extracting $1.1 billion to settle claims on faulty home loans.

The agreement includes a cash payment plus loss-sharing that could bring the total cost to about $1.6 billion, the bank said today in a statement. Assured jumped $3.43, or 24 percent, to $17.60 at 4:15 p.m. in New York Stock Exchange composite trading, its best showing since November 2008. Bank of America, the biggest U.S. bank, dropped 31 cents to $12.82.

The two companies clashed last year over whether Bank of America should reimburse the Bermuda insurer for loans that were based on false data about the homes and borrowers. Dominic Frederico, Chief Executive Officer of Assured, likened the talks last August to the agony of water torture, while Bank of America CEO Brian T. Moynihan said in November that negotiations were “day-to-day, hand-to-hand combat.”

“We have basically resolved virtually all of the controversies between our various companies and Assured,” Bank of America Chief Financial Officer Charles Noski said today in a conference call with investors. The Charlotte, North Carolina- based bank has agreed to pay insurers and investors more than $7 billion to retire mortgage-repurchase claims since Moynihan, 51, took the top job in 2010.

Stocks React
While the bank had reimbursed some individual claims before, the accord marks the first time Bank of America reached a formal settlement over soured loans with a bond insurer, Jerry Dubrowski, a spokesman for the lender, said in an e-mail.

Among other bond insurers, MBIA Inc. (MBI) surged 17 percent in New York trading to $10.48, while Ambac Financial Group Inc. (ABKFQ) rose 2.9 percent to 14.4 cents.

“We are pleased to have reached a settlement with Bank of America that puts this legacy issue behind both of us,” Frederico said in a statement. Assured has been profitable since 2007, including net income of $548.9 million last year. Losses tied to guarantees of residential mortgages contributed to a fourth-quarter loss.

Frederico, 58, told investors in November that Assured had been pursuing refunds for three years, “long before many market participants realized the poor adherence to underwriting standards and practices occurring at the originator level. And we are gratified that the market finally seems to recognize the magnitude of this situation, and the potential for recoveries.”

Assured plans to report quarterly results next month.

More Lawsuits
Bank of America is the largest U.S. servicer of mortgages and was the biggest home lender until Wells Fargo & Co. bought Wachovia Corp. The company still faces suits from insurers including MBIA and Ambac. The carriers alleged that Countrywide Financial Corp., which Bank of America bought in 2008, fraudulently induced the firms to guarantee bonds composed of faulty mortgages.

Bank of America and Countrywide have been accused by investors and regulators of selling loans that inflated property values and borrowers’ incomes. Moynihan set aside about $3 billion late last year to retire most claims brought by U.S.- owned mortgage finance companies Fannie Mae and Freddie Mac. In January, the bank said its “upper range” forecast for additional losses was $7 billion to $10 billion.

Bank of America and rivals in the market for mortgage servicing agreed this week to pay homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse. The deal with the Justice Department, announced April 13, is the first of a set of sanctions that regulators are seeking against the companies.