Flagstar Bancorp Inc. in Troy, Mich., said it would take an $8.7 million pretax charge in the fourth quarter because it lost a lawsuit over insurance coverage.
The $15.1 billion-asset company announced Tuesday after the markets closed that a federal judge had dismissed its lawsuit against the Chubb Group of Insurance Cos.
Flagstar sued in early spring 2005 after Chubb denied a claim it had filed over $22.4 million of allegedly fraudulent warehouse loans. Chubb had issued Flagstar a fidelity bond for the loans. When Flagstar found the loans were bad in March 2004, it asked for reimbursement under the bond's forgery coverage. The promissory notes of the warehouse loans were forged, it said.
The federal court ruled that the bank's loss was not caused by forgery but because the collateral was worthless.
Flagstar said it intends to appeal the decision. It said it plans to try to recover money through other civil judgment and criminal restitution orders against the borrowers. It also has sued, in a Colorado state court, a warehouse lender that gave a reference for the borrowers. The Michigan bank claimed that the other lender knew about the alleged fraud but provided a false reference so that it would be repaid.
The pretax charge is expected to reduce earnings by about 9 cents per share, according to Friedman, Billings, Ramsey & Co. in Arlington, Va. The investment bank cut its full-year earnings estimate by 15 cents a share, to $1.20.
