Ambac Obliterated: Is This the End?

Discussion in 'Wall St. News' started by archon, Apr 25, 2008.

  1. archon


    Ambac Obliterated: Is This the End?
    By Morgan Housel April 24, 2008

    2 Recommendations

    I thought the worst was over. After the first three months of 2008 threw more curveballs at bond insurer Ambac Financial (NYSE: ABK) than it could dodge, I didn't think the news could get much worse.

    It did.

    Ambac reported a first-quarter net loss of $1.66 billion, or $11.69 per share, in stark contrast to a profit of $213 million, or $2.02 per share, in the same period last year. The mounting troubles led to negative revenue of $1.56 billion, down from a positive $462 million in the first quarter last year. Yikes.

    Reacting to the sour news, shares of Ambac plummeted more than 40% Wednesday to their lowest levels ever since the company went public in 1991. The stock has now fallen 96% in the past year.

    A good chunk of the quarter's drop was attributable to a $1.73 billion mark-to-market loss on credit derivatives. The loss included a $940 million credit impairment on collateralized debt obligations (CDOs) primarily linked to residential mortgage-backed securities. Ambac also set aside a little more than $1 billion in loss provisions to cover expected claims on mortgage-related securities. Mayhem in the debt market has pounded Ambac and rival MBIA (NYSE: MBI), which both face a possible mountain of liability on the CDOs insured in case of default...