Deutsche Bank and Ambac are at loggerheads over the monoline's refusal to pay the bank over USD8 million in a portfolio credit-default swap trade. An effort to resolve the dispute out of court foundered two weeks ago and the pair are now heading toward a New York court hearing in December.
The monoline is refusing to pay the bank after Solutia defaulted because Deutsche Bank missed the deadline to deliver defaulted bonds. The German bank, which is suing both Ambac Credit Products and Ambac Assurance Corp., claims Ambac verbally agreed to Deutsche Bank missing the deadline. Attorneys for both parties and officials at the two institutions declined comment.
In Ambac's reply to Deutsche Bank's preliminary court statement, the monoline describes the bank's actions as a "meritless attempt by Deutsche Bank to recover from Ambac losses that Deutsche Bank sustained as a result of its own failure to comply with its agreement with Ambac Credit."
The monoline claims that even if it did reach a verbal agreement and Deutsche Bank has recorded telephone conversations to prove it, that counts for nothing because the agreement can only be changed in writing. "The Complaint is unenforceable because [the alleged agreement] was not in writing," the statement said.
Although the case is scheduled to go to court in December, derivatives professionals expect the two parties to reach a settlement beforehand. One official said Ambac may attempt to dismiss the case. Derivatives lawyers said even though the International Swaps and Derivatives Association master agreement says all amendments have to be made in writing Ambac is unlikely to get the case dismissed because recorded telephone conversations between authorized employees are often accepted as binding in financial markets.
