Friday, February 29, 2008

Uncertainty builds at Ambac, MBIA

Fortune Magazine

Ambac (ABK) and MBIA (MBI) sank along with the broader market Friday, after the investors in the bond insurers got hit with a bevy of bad news. First, billionaire vulture investor Wilbur Ross said he would sink as much as $1 billion into rival Assured Guaranty (AGO), bolstering the company’s capital position and giving it a chance to benefit from the uncertainty surrounding MBIA and Ambac. Then CNBC reported that talks regarding a $2.5 billion capital-raising effort for Ambac have hit a snag, with ratings agencies apparently demanding a bigger infusion, though the channel stressed that discussions continue. Last but not least, MBIA - which took some $4 billion in mark-to-market losses in its fourth quarter to account for declines in the market value of its derivatives portfolios - said on page 28 of its annual report that it expects further mark-to-market writedowns in January. Approaching midday, Assured Guaranty was up 12% and MBIA and Ambac were each down 5%. But recent history shows that if Ambac is able to work out a deal with its bankers Friday afternoon, shares of it and MBIA - as well as the big market indexes - could reverse course in a big way.

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