Merrill Lynch sues SCA for credit swaps

Merrill claims SCA’s financial guarantee subsidiary, XL Capital Assurance, owes the firm as much as $3.1 billion.

Merrill Lynch & Co. has filed a lawsuit against a bond insurer unit of Security Capital Assurance, claiming that the firm is attempting to avoid financial obligations made to the investment management firm.
The lawsuit filed by Merrill Lynch International in New York Federal Court yesterday alleges that Hamilton, Bermuda-based SCA’s financial guarantee subsidiary XL Capital Assurance Inc., owes the New York-based firm as much as $3.1 billion in seven credit default swaps.
“Merrill Lynch is confident that the credit default swaps are fully enforceable,” said company officials in a statement.
“The complaint seeks a court order that each of the credit default swaps remains in full force and effect.”

SCA officials responded to the lawsuit by acknowledging the credit default swaps but saying they were terminated due to Merrill Lynch International not honoring contractual obligations made to XLCA.
“Despite whatever other claims Merrill Lynch may make regarding these terminations, we believe that Merrill Lynch International gave the control rights on seven collateralized debt obligation contracts to one or more third parties without our knowledge and in direct violation of our agreements,” said SCA officials in a statement.