Another Disastrous Quarter For Ambac

Ambac reported its first quarter results and it was a disaster no doubt. It's a lot worse than what I, or the market, was expecting and the stock is down another 30% today. The really bad news is another $1 billion in actual expected losses.

I'll summarize the key points from the 1Q management presentation below (the conference call is at 11AM EST.) I'll post more from the presentation later so if you are interested in Ambac check back later. Ambac's presentation is very detailed and finally presents some loss curves of some of their transactions.

  1. GAAP 1Q loss: $1.66 billion (this is the amount that includes mark-to-market)
  2. Essentially zero new business
  3. RMBS impairment: $1.046 billion
  4. CDO impairment: $0.9404 billion
  5. Investment agreement business loss: $95 million (last thing I need to hear is a loss in some side business :( )
  6. Most of the direct RMBS losses coming from, not surprisingly, CES (competitors like MBIA will probably post massive losses on HELOCs as well)
  7. Seeing deterioration in CES, HELOC, Alt-A (mid-prime)
  8. RMBS downgrades by rating agencies has not slowed, and this may result in CDO-squareds with underlying mezzanine CDOs as collateral being liquidated by the senior tranche holders. These CDO-squareds may result in 100% loss.
  9. CLOs, student loan ABS, subprime auto loan ABS deteriorating but within Ambac expectations presently.


Overall the high impairment is dissapointing to shareholders but not shocking (like the prior quarter.) As most have been expecting, the losses are almost entirely within CDO-squareds, HELOCs, and CESes.


I'm not sure if the 1Q losses will threaten Ambac's financial strength ratings but it remains to be seen. I'll post a lot more later tonight.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>