AccruedInterest On His/Her Calculations of Ambac's Losses
AccruedInterest posted a breakdown of the loss estimates that was used for Ambac in the prior blog entry. The author goes on describe the situation facing Ambac and others when it comes to raising capital. As I remarked in my prior post, reinsurance is the least dilutive but it will hit future earnings and I would guess that it will shave 2% to 3% off future ROE. But if a lot of capital needs to be raised then multiple methods may be needed, including issuing shares (the most expensive of all).
The tricky thing for those sitting on the sidelines is that we don't know how much dilution the market is pricing in (the knowledgeable experts may but newbies like me don't). My strategy, assuming my risk arbitrage position on TRB is closed successfully, is to wait until late December and see what the rating agencies say. You can try to outguess them by buying before their decision but that is very risky.
The tricky thing for those sitting on the sidelines is that we don't know how much dilution the market is pricing in (the knowledgeable experts may but newbies like me don't). My strategy, assuming my risk arbitrage position on TRB is closed successfully, is to wait until late December and see what the rating agencies say. You can try to outguess them by buying before their decision but that is very risky.
Nobody really knows how much dillution is priced in. Its impossible to separate the dillution effect from the book value loss effect.
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