How long before Ambac repeats Bears Stearns?
WHAT THER HECK ARE "CLAIMS PAYING RESOURCES?" - Reliance on derivative receivables is not income readily available if the counter party cant pay you.
Story isnt over yet, not even close
Ambac Financial Group told Wall Street on Friday that there’s nothing to worry about.
In a letter, Chief Executive Michael Callen tried to calm jittery investors who have been worried about the bond insurer’s liquidity and ratings by revealing that the firm has over $15 billion of “claims-paying resources.” Callen said this cash cushion is sufficient to meet Moody’s and Standard & Poor’s criteria to retain its sterling credit rating, which is necessary if the company is to remain in business. Investors seemed unconvinced, as Ambac’s shares sank 5.0%, or 33 cents, to $6.30 at the close on Friday.
Ambac, which is one of the largest U.S. corporate and municipal bond insurers, said it may exit certain businesses, but it will continue to insure student loans, utility bond issues and certain other structured finance issues, as well as hospitals, roads, schools and financing for other issues. It also said it is undertaking a review of all its businesses.
Callen pointed out that Ambac is in the “risk business” and is operating “in the most stressed credit environment that I can recall in my 40-year involvement with the financial marketplace.” Even so, Callen remains confident that Ambac will “weather the storm.”
Callen added that the loss projections that investors read about are stress case losses, which are worst case scenario losses, not expected losses. He added that the company never considered a “bailout” and that most of Ambac’s insurance portfolio is performing strongly.
On March 12 Ambac said that Moody's (nyse: MCO - news - people ) and S&P affirmed their AAA ratings for its bond insurance arm after it raised $1.5 billion in new capital a week earlier disappointing Wall Street which was expecting a bank bailout. (See “ Ambac’s Surprisingly Strong Day” and “ Ambac Gets Handout, Not Bailout”)
Callen’s letter made it clear that bailouts are for companies facing insolvency. While he said Ambac was offered “capital alternatives” the terms were at an “unacceptably high price.”
Callen’s comments come on the same day the U.S. government and JPMorgan Chase (nyse: JPM - news - people ) bailed out Bear Stearns (nyse: BSC - news - people ) in an effort to save the brokerage house after a week of denials that it was in trouble.
