NEW YORK (Reuters) - Ambac Financial Group Inc <ABK.N>, a bond insurer that struggled to raise capital earlier this year, posted a surprisingly wide first-quarter loss on Wednesday after setting aside $1 billion to cover future payouts on mortgage bonds.
By Dan Wilchins
NEW YORK (Reuters) - Ambac Financial Group Inc <ABK.N>, a bond insurer that struggled to raise capital earlier this year, posted a surprisingly wide first-quarter loss on Wednesday after setting aside $1 billion to cover future payouts on mortgage bonds.
The company's shares fell 19 percent pre-market as Ambac reiterated that it is writing "very little new business," and that the weak quarter wiped out 40 percent of the company's net worth.
Ambac lost money in 2007 after insuring repackaged mortgage debt and other risky securities that were walloped by the credit crunch. Fears the bond insurer would lose its top credit ratings, forcing investors to sell billions of dollars of securities and further depressing bond markets, sent global financial markets into a tailspin earlier this year.
!ADVERTISEMENT!The quarterly loss was $1.66 billion, or $11.69 a share, compared with year-earlier net income of $213.3 million, or $2.02 a share. Excluding items, Ambac's loss was $6.93 per share, far more than analysts' average forecast for a loss of $1.82 a share and a sharp reversal from year-earlier earnings of $2 a share.
In a statement, Ambac Chief Executive Michael Callen said, "While we realize these are disappointing credit results, we continue to believe that the capital raise and strategic business actions taken during the quarter will enable us to get beyond this credit market."
Ambac's main insurance unit managed to keep its top triple-A credit ratings from Moody's Investors Service and Standard & Poor's last month after raising fresh capital. Those credit ratings are crucial for winning new business, and both Moody's and S&P said they may still cut Ambac Assurance Corp's ratings over the next few years.
Many investors can only hold bonds with "triple-A" ratings from both Moody's and S&P. Fitch stripped Ambac Assurance of its top ratings in January.
Callen said on Wednesday that the company exceeds S&P's target capital level by a comfortable margin, and expects to exceed Moody's target level in the second quarter.
Ambac's shares fell $1.15 to $4.88 in pre-market trading on Wednesday, and have fallen 95 percent since peaking in mid-May 2007.
The company said it marked down the value of derivatives on repackaged mortgage bonds, known as collateralized debt obligations, by $940.4 million, because it expects to make payouts on those securities. Total mark-to-market losses on credit derivatives were $1.7 billion.
Net premiums written sagged 38 percent to $135.7 million.
The results were weak enough to erase $980 million, or 40 percent, of Ambac's shareholders' equity. The company struggled to sell $1.5 billion of shares and convertible securities in March as New York State Insurance Superintendent Eric Dinallo worked with banks and others to help the insurer raise capital.
(Reporting by Christopher Kaufman and Dan Wilchins; Editing by Lisa Von Ahn)
