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Ambac Posts Fifth Net Loss in Six Quarters

Posted on 25 Feb 2009

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The second-largest bond insurer, Ambac Financial Group Inc., posted its fifth net loss in six quarters, setting aside more money for soured home-loan debt and $1.53 billion because it may be unable to use tax credits.

Ambac’s fourth-quarter net loss narrowed to $2.34 billion, or $8.14 a share, from $3.27 billion, or $32.03, a year earlier. Excluding changes in the value of securities it holds, issued or insures, the New York-based company said in a statement today that its loss was $6.79 a share.

Seeking to rebound from mortgage losses that stripped the seven top-rated bond insurers of their AAA grades, Ambac last year won agreements with banks to cancel contracts at discounts. Today, Chief Executive Officer David Wallis said Ambac plans to open a municipal-only insurer called Everspan Financial Guarantee next quarter to create a new source of revenue.

“Everspan is a vital focus,” Wallis told analysts and investors on a conference call. “We continue to work closely with our regulator and rating agencies and are hopeful of proceeding with this soon.”

MBIA Inc. this month won the right to split its public-finance business and structured-finance guarantees, as the Armonk, New York-based rival also seeks to re-enter a shrunken market for backing state and city debt. Ambac expects to make at least $500 million of capital available for its unit, Douglas Renfield-Miller, Everspan’s planned CEO, said on the call.

Negative Equity

Ambac, whose shares have fallen almost 99 percent from their 2007 peak, declined 5 cents to 96 cents at 11:50 a.m. in New York Stock Exchange composite trading. The insurer’s market value has dropped to less than $300 million from more than $9 billion at the start of 2007, just before the subprime-mortgage market began to unravel.

During the fourth quarter, total stockholder equity, a measure of what would be left for shareholders if Ambac used all its assets to pay off all its liabilities, fell to negative $3.8 billion, from positive $2.38 billion a year earlier.

MBIA, the largest bond insurer by outstanding guarantees, Ambac and the rest of the industry have posted record losses after expanding from guarantees on municipal bonds that rarely default to insuring securities tied to mortgages before the U.S. housing slump. Wallis, Ambac’s former chief risk officer, became CEO in October; Michael Callen stayed on as chairman.