Ambac Loses $2.39bn in Q209, Sues Citi and Credit Suisse

Bond insurer Ambac Financial Group (ABK) reported a net loss of $2.39bn or $8.33 per share for Q209, reflecting higher losses in the portfolio of insured residential mortgage-backed securities (RMBS) transactions. Ambac also insures the collateralized debt obligations (CDOs) of an asset-backed securities (ABS) transactions. The value and payments come from the assessment of its portfolio of fixed-income underlying assets by rating agencies such as Fitch Ratings and Moody’s Investors Service. The monoline typically insures products that are equal to or below its own credit rating. Second-lien and Alt-A RMBS transactions accounted for $1.23bn in losses for the quarter. Ambac Assurance Corporation’s (AAC) other-than-temporary impairment losses amounted to $675.4m, compared to a net loss of $2.4m in Q208. Management decided to sell investment securities, primarily Alt-A RMBS securities rated below investment grade by Moody’s or Standard & Poor’s, held in the insurance company investment portfolio. As a result, Ambac took other-than-temporary impairment charges on these securities. In July, HousingWire reported S&P cut Ambac Assurance to double-C from triple-B, lowering it to junk status on expected losses for the quarter. Earned net premiums shrank 45% from $325.5m in the second quarter to 2008 to $177.7m in Q209. Net investment incomes also decreased by 5% from Q208 to $120.4m, primarily due to a portfolio liquidation needed to pay losses on the transactions. “The quarter’s financial results are obviously very disappointing, as continued poor performance of the mortgage-related portfolios and rising forward interest rates have escalated projections of future claims,” Ambac’s president and CEO, David Wallis said in the report. Last week, Ambac filed a suit against Citigroup (C) and Credit Suisse, alleging that the two companies misrepresented the risks and market values of securities. Ambac hopes to void $2bn in a portion of the credit default swap protection written on the residential mortgages Citi originated. Write to Jon Prior.