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Ambac Losses on Credit Derivatives Rose $1.6 Billion

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Posted on 28 Jul 2009

Ambac Financial Group Inc. said its bond insurance unit, Ambac Assurance Corp., expects to report statutory impairment losses on credit derivatives increased by about $1.6 billion in the second quarter to about $4.9 billion.

The New York-based bond insurer said in a statement that those losses, along with $800 million of additional claims on home-equity-loan-backed securities recognized in the second quarter, will reduce its statutory surplus to $372.8 million. The company will discontinue dividends on its insurance unit's preferred shares and its holding company’s subordinated capital securities to preserve cash.

Bond insurers are required to maintain minimum statutory surpluses or be taken over by regulators. No bond insurer has been taken over by regulators to date, an event that could trigger billions of dollars of termination payments on credit- default swap contracts. Instead, the companies have worked out deals to tear up contracts on their poorest-performing credit- default swap contracts in exchange for making upfront cash payments to the holders of the contracts.

Ambac said it agreed during the second quarter to pay $750 million to two financial institutions to tear up $2.8 billion of credit-default swap contracts.


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