Ambak to File Bankruptcy ?
This was all but inevitable:
Bond insurer Ambac Financial Group said again that it may seek bankruptcy protection after state regulators took control of some of its most troubled assets.
The news Thursday sent the company’s already devalued stock into a tailspin.
The Wisconsin insurance commissioner on Wednesday ordered Ambac’s main operating subsidiary, Ambac Assurance Corp., which is based in that state, to set up a segregated account for policies related to risky structured finance transactions. Those include the credit default swaps and residential mortgage-backed securities held by major Wall Street banks that helped to accelerate the national financial crisis.
At one point in time, ABK had the highest income per employee of any publicly traded firm.
Here’s what I previously had written about them:
Like Ambak (ABK), MBIA ran what was an enviably low risk, high return business. They sold a product that was more or less unnecessary — Muni Bond insurance — to willing buyers that saw a decrease in borrowing costs once they bought into the game. I don’t buy into the notion that muni bond insurance is a scam, but it comes close: Fund buyers got insured paper, Muni borrowers got lower rates (therefore saving on borrowing costs), and ABK/MBIA got well paid for insuring bonds that went bust at one of the lowest rates of all classes of fixed income paper.
As we noted back in January, that high profit, low risk situation — despite its enormous profitability — was obviously intolerable. In came the financial engineers, as the thought process seemed to be “Hey, we should be issuing insurance on riskier paper — think about how much much bigger the premiums are than boring old munis!”
The rest, as they say, is history . . .
>
Previously:
MBIA DESERVES to Go Belly Up (August 11th, 2008)
Counter-Party Risk (January 18th, 2008)
Source:
Ambac may seek bankruptcy after regulators step in
EILEEN AJ CONNELLY
Reuters, March 25, 2010
http://www.google.com/hostednews/ap/article/ALeqM5gnFJ45TM0cp0m207GbS3EZdHfucQD9ELUBIO0
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March 25th, 2010 at 8:44 pm
No real surprise. Negative book value for quite some time. What was interesting was when they did that stock offering what 2 years ago now that the CEO was on TV and in an interview on CNBC couldn’t understand why people would buy more of the stock and that was coming from the CEO!
March 25th, 2010 at 8:51 pm
What’s sad is that “Muni-Bonds” are one of the last alternatives for “Fixed Income/Safety oriented” Investors.
They aren’t making anything off CD’s or MM’s. So Muni’s seemed attractive. But, Muni’s are not what they used to be given the RISK.
So, once again…the value/near retirement investor…is looking at Muni’s when the word out there about them on the “Street” is so dire that it’s “buyer be ware!”
What’s a “value/conservative investor” to do these days? Go with those suckering them in and figure Govt. will Bail Out once again….or hold back in “little interest” MM’s and CD’s?
TRIPLE AAA means NOTHING! So, one can’t even have confidence in the Ratings Agencies since they along with the rest of the CRIMINALS have NEVER BEEN HELD ACCOUNTABLE!
What to do….What to do…….
March 25th, 2010 at 10:49 pm
The GOP loves insurance on Muni bonds… but no insurance for the the elderly and veterans.
March 25th, 2010 at 11:30 pm
Not too big to fail. Or not sufficiently tied into the fortunes of Goldman Sachs.
March 26th, 2010 at 8:55 am
They got what they deserved for their greed and stupidity. I hope the counter-parties with insurance on high risk crap will take a serious haircut. They need to learn that you can’t just ship off your risk regardless of how high it is.
March 26th, 2010 at 11:03 am
I sure hope they have some friends in high places. I don’t think Wisconsin is politically significant enough to not let them go under. If WAmu was allowed to die, then this one will too!
March 26th, 2010 at 12:01 pm
What? Allow an existing company with a business strategy based on selling empty promises fail? And they are different from AIG in that regard because? Isn’t there a constitutional (and legal) principle that similarly-situated people (remember, the Supremes said corps are people) be treated the same? How then does one validly discriminate between these two entities? I think they should sue the federal reserve for violating their due process. After AIG, they have a property interest in being rescued by the federal reserve. Before it can be taken from them, there has to be a hearing and just compensation.
March 28th, 2010 at 11:42 am
Two years too late, if you ask me.
Remember Gasparino’s Rumor-o-the-Day to try to spook the shorts?
Remember all the deep-value guys (looking at Marty Whitman, specifically) who were piling into this on the long side in the 30s and 40s?
Remember Cramer flogging its cohort MBIA as a buy-buy-buy at 65? because concerns about its derivative exposure were just completely overwrought.