Hedge Funds Bet Banks Will Pay Up In Mortage-Backed Bond Suits

Jan 29 2014 | 10:36am ET

Banks have paid out tens of billions of dollars in recent years to settle allegations—both from regulators and investors—stemming from the subprime mortgage crisis. Hedge funds are betting that those deals are just the tip of the iceberg.

Hedge funds are behind one of the biggest bets on the market right now: That banks will be forced to pay out even more to settle even tougher lawsuits. And the hedge funds themselves are often behind those lawsuits, The New York Times reports.

Hedge funds have been buying up mortgage-backed bonds that have been the target of investor lawsuits. Those bonds could soar in price if banks lose or settle those lawsuits—or if investors think they'll lose or settle. And there are as many as $200 billion worth of them out there, according to Nomura.


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    Get A Sneak Peak Of The Alpha Pages

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    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

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