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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Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…