Ambac could see bank bailout next week
A plan to bail out the struggling bond insurer Ambac Financial Group Inc. could be announced Monday or Tuesday, CNBC reported Friday, citing bankers working on the deal.
There is a consortium of banks - including Citigroup Inc (C, Fortune 500)., UBS AG (UBS), Wachovia Corp. (WB, Fortune 500) and Royal Bank of Scotland Group PLC - working with the New York State Insurance Department on a possible solution to Ambac’s problems, a person familiar with the discussions told The Associated Press.
The person, who asked to remain anonymous because he was not authorized to speak publicly about the subject, said there "seems to be progress."
Ambac (ABK) shares jumped late Friday and finished up $1.48, or 16%, at $10.71.
Ambac has been in talks for weeks now with state regulators and banks. The aim is to raise cash and, in turn, maintain the company’s top-notch credit rating. The insurer essentially needs a credit rating of "AAA" to book new business.
On Tuesday, Goldman Sachs Group Inc. analyst James Fotheringham slashed his price target for Ambac to $7 from $10, saying it will probably need to raise about $3.5 billion to maintain its "AAA" rating from Moody’s Investors Service and Standard & Poor’s. Fitch Ratings has already downgraded the company.
Bond insurers’ ratings are in jeopardy because the value of the securities they insure - many of which are backed by mortgages - have plunged in value since mortgage defaults started spiking last year and the credit markets seized up.
"We continue to be engaged in and fully supportive of the bond insurers’ ongoing efforts to resolve their current problems," said Andrew Mais, director of public affairs at the New York State Insurance Department fast cash payday loan. "As insurance regulators, it is our responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. We are encouraged by any developments that further these goals in this important market."
Earlier this month, another big bond insurer - MBIA Inc. (MBI) - raised $1.1 billion by selling a stake in itself of about 40% in a deal involving JPMorgan Chase & Co., (JPM, Fortune 500) Lehman Brothers (LEH, Fortune 500) and Warburg Pincus.
Though the banks involved have their own share of problems with credit-related losses, they do have some incentive to invest cash in the bond insurers. If the bond insurers fail, the banks could see even bigger losses and the credit markets could tighten further.
Filed under: economics by Wolf