CORRECT: Ambac At Risk Of Regulatory Seizure, Two Firms Warn
November 05 2009 - 2:26PM
Dow Jones News
Ambac Financial Group Inc.'s (ABK) bond-insurance business is in
danger of falling below legally required capital levels, which
could land the company in receivership and wipe out shareholders,
JPMorgan Chase said Thursday.
Ambac, the nation's second-largest bond insurer behind MBIA Inc.
(MBI), reported $2.2 billion in profits Wednesday. But it didn't
provide an update on statutory capital it has issued alongside
earnings in previous quarters. The company instead said its
claims-paying resources declined to $11.4 billion from $11.9
billion, CreditSights noted Wednesday in a report that echoed some
of JPMorgan's concerns.
Statutory capital at the company's bond-insurance unit as of
Sept. 30 "could very well be in a deficit," JPMorgan Chase analysts
said, calling regulatory supervision "likely."
Ambac's statutory capital stood at $495 million in June. By law
in Wisconsin, the state that is Ambac's primary insurance
regulator, it must remain above $2 million.
Both research firms speculated that the company could soon face
government action. The update on statutory capital is due Nov.
16.
"When asked about the possibility of regulatory seizure given
its dangerously low capital levels, the company did not assert that
it would certainly be above the $2 million mark and instead said
that it would not speak on behalf of the Wisconsin regulators,"
CreditSights said.
The JPMorgan analysts said they believe state authorities "will
be taking some level of supervisory action to protect policyholders
in the near term, at which time an event of default on Holdco debt
would trigger due to cross-default provisions, leaving no recovery
value for shareholders." "Holdco" is short-hand for holding
company.
An Ambac spokesman called the reports speculation, and said the
company is in negotiations with counterparties. Ambac is hoping to
improve its capital position through remediation on some
transactions it secured, by getting reimbursed for some bad loans
in some securities. Ambac said it expects eventually to recover
about $1.9 billion, but so far has collected only a small part of
that.
The company will issue the capital update by the official Nov.
16 deadline, said Peter Poillon, Ambac's investor relations'
managing director.
"It's conjecture on their part; there's not a lot that I can
comment upon regarding their views and opinions," Poillon said.
"We don't know what our capital level is and we haven't
completed our statutory financial statements yet. Until we do, I
can't comment," he added.
He also said that regulatory authorities aren't obligated to act
if statutory capital falls below $2 million.
Officials at the State of Wisconsin Office of the Commissioner
of Insurance couldn't immediately be reached.
Shares of Ambac, which rose 35.1% on Wednesday after it reported
it swung to a profit in the third quarter, were down 16% in recent
trading at $1.26.
-By Brendan Conway, Dow Jones Newswires; 212-416-2670;
brendan.conway@dowjones.com
(Lavonne Kuykendall in Chicago contributed to this article.)
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