Wednesday, June 11, 2008 0 comments ++[ CLICK TO COMMENT ]++

SCA Loses Lawsuit Against Merrill Lynch

Yesterday, SCA lost its lawsuit against Merril Lynch. This was the case where SCA was trying to cancel some bond insurance conracts.

A U.S. District Court judge ruled on Tuesday that Security Capital Assurance Ltd's XL Capital Assurance Inc unit will have to stand by $3.1 billion of guarantees on collateralized debt obligations, in dispute with Merrill Lynch & Co Inc.

Judge Jed Rakoff in a summary judgment ruled that Merrill Lynch International had not repudiated its obligations under seven credit default swaps it entered with XCLA, and that XLCA's attempt to terminate those swaps was invalid.

SCA never had a chance and was clutching at straws so this isn't a surprise to me. There are bound to be more lawsuits but I think the monolines will lose most of them. Even in cases where fraud was committed, it will be tough to prove that the companies packaging the securities were culpable. Many of the mortgage lenders and appraisers who were involved in the questionable parts of the mortgage business are bankrupt so it's not as if you can collect anything from them. In addition, on a slightly different tact, the rating agencies are cutting deals with the state governments and SEC so they will be immune too. Some monoline investors seem to think that there might be some value to be gained in the courts, but I completely disagree. On top there being little merit in many of these cases, I would never invest based on the possibility of winning a lawsuit.


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