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.

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