Deutsche Bank has today lost its battle to sue monoline Ambac for non-payment of credit protection following a default. Ambac had refused to pay USD8.771 million in protection for defaulted Solutia bonds because the German firm handed over the reference entities a month past the governing contract's deadline. Deutsche Bank sued Ambac Credit Products and Ambac Assurance Corporation, alleging they led the firm to believe Ambac would accept the reference entities after the physical settlement date.
Ambac officials did not comment by press time. Deutsche Bank officials and counsel representing Ambac declined comment. Counsel representing Deutsche Bank did not respond to a message and it could not immediately be determined if the German firm will appeal the decision.
The action had originally been filed by Deutsche Bank July 19, 2004, but repeated attempts to settle out of court failed (DW, 3/4/05). The case was heard in the Southern District of New York Court at the end of June, and Judge Denise Cote denied Deutsche Bank's claims. "[Deutsche Bank] has utterly failed to carry its burden of demonstrating that ACP intended to induce DB to make a late delivery, or that DB actually relied on any of ACP's statements or actions in determining how and when to settle the transaction," Cote ruled.
One lawyer commented the governing documents in the case were under the 1999 International Swaps and Derivatives Association credit derivatives definitions, which have since been updated, so the decision may not have significant legal consequences. He noted, however, its psychological effect is more important because a monoline has taken on a major dealer and won. He added it is a strong reinforcement for the contractual guidelines, a clear statement that however big a firm is, it still has to play by the rules. "It's about monolines not being bullied by dealers," he summed up.
