Ambac Announces Capital Enhancement Plan to Raise in Excess of $1 Billion.
Ambac Financial Group, Inc. (ABK) today announced that its Board of Directors has approved a plan to strengthen its capital base through the issuance of at least $1 billion of equity and equity-linked securities.
This plan may also include additional capital from reinsurance or issuance of debt securities. Ambac said that it is committed to maintaining its triple-A financial strength. By raising at least $1 billion in capital, Ambac is expected to meet or exceed Fitch Ratings’ current triple-A capital requirements for the Company.
The Company noted that its existing capital position currently meets or exceeds the triple-A capital requirements of both S&P; and Moody’s. As part of its capital initiative, Ambac also said that it will reduce the quarterly dividend on its common stock from $0.21 per share to $0.07 per share.
Mark-to-market and Losses
The Company also announced the results of its fourth quarter fair value review of its outstanding credit derivative contracts. Ambac’s estimate of the fair value or “mark-to-market” adjustment for its credit derivative portfolio for the quarter ended December 31, 2007 amounted to an estimated loss of $5.4 billion, pre-tax, $3.5 billion, after tax. Of the estimated $5.4 billion pre-tax mark-to-market loss, approximately $1.1 billion represents estimated credit impairment related to certain collateralized debt obligations of asset-backed securities transactions.
Ambac also expects to report a loss provision amounting to approximately $143 million, pre-tax. The loss provision relates primarily to underperforming home equity line of credit and closed-end second lien RMBS securitizations.
As a result of the aforementioned losses, Ambac expects to report a net loss per share of up to $32.83 for the fourth quarter ended December 31, 2007.
The interesting thing here is the mad scrambling to preserve a rating the market knows is useless. The equity market does not believe Fitch’s rating of AAA, nor does anyone who is thinking clearly. The magic trick by Moody’s, Fitch, and the S&P; is to delay the downgrade long enough so most market participants can be prepared for it.
Bill Ackman on MBIA & bond insurers
Reinsurance from Buffet is not going to help either Ambac (ABK) or MBIA (MBI). Buffett will cherry pick the best debt to reinsure while leaving Ambac and MBIA holding the junk. I had to laugh at those stocks bouncing when the headline should have been “Buffett Picks Insurer’s Pockets”. Anyone who thinks Buffett will save Ambac or MBIA is mistaken. Besides, why would he want to?
Mike “Mish” Shedlock
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