Wednesday, April 23, 2008

Ambak (ABK), MBIA (MBI) Back to their Old Ways

I wrote in last evenings earnings preview

Ambak (ABK) - strange how all the "issues" with these simply dropped off the radar - did all their problems get sweeped away? Literally it is as if these 2 bond insurers no longer exist. They were the focus of the market every day for a month and the "resolution" offered the names didn't seem to really fix the problem. Strange.

After causing so much fuss [Jan 19: Bond Insurers Becoming More Troublesome] CNBC trotted out Charlie Gasparino once every other week announcing potential "bailouts" for these companies, to prop up the market, and then suddenly the issue disappeared off into the night... until someone picked up the old rug and decided to look under it this AM.. oops. I am really wondering if one or both of these companies will be a going concern in the future ... if they cannot attract new business it is going to be a difficult road to hoe. Especially with Sir W. Buffet and Sir W. Ross hot on their tails

Again, in the stock market it "does not matter" until "it matters". With the Fed backstop everything was fine and dandy in financials for a month there. But we still have billions upon billions insured by these very undercapitalized bond insurers. Ambak down 40% and MBIA down 30% today.
  • Ambac Financial Group Inc (NYSE:ABK - News), 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.
  • 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.
  • 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. (hey once you exlclude items they only lost $7, not $12! Why is the stock not up 50%?? That's how it works in financials I thought?)
  • 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." (of course, just trust me - this is back to back quarters of implosive losses - just give us "6 months" when nirvana returns to Earth)
No positions (of course)

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