Ambac Releases Chairman's Letter
14 Mars 2008 - 2:29PM
Business Wire
Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
that it has released its Chairman�s letter to policyholders,
clients, shareholders and friends. The letter follows: Dear
Policyholders, Clients, Shareholders and Friends: It is with
pleasure that I report to you that, in this difficult environment,
Ambac has been able to achieve its immediate objectives - enhancing
Ambac�s capital position and improving our position with the rating
agencies. This success is a testimony to the dedication of my
colleagues at Ambac and to the support Ambac has received from
shareholders, policyholders, regulators, clients and friends. The
capital raise was strongly supported by many of our existing
shareholders. This vote of confidence in Ambac�s future is greatly
appreciated. With the capital raise in place, Ambac, in our view,
now has the resources from which to build its future, including the
ability to capitalize on attractive, sound opportunities as they
arise in the financial guarantee business. Ambac has over $15
billion of claims-paying resources, sufficient to meet Moody�s and
S&P�s criteria to retain a triple-A rating. Additionally, our
capital base will build further as other judicious capital
strengthening actions are implemented. You should also be aware
that, along with our capital raising efforts, we are undertaking a
close examination of all aspects of Ambac�s business � our
organization, business focus, systems and processes. While our work
in this regard is ongoing, we have already implemented some
important changes. As previously announced, we have created a new
risk management structure and we are refocusing our business
(including the exiting of certain businesses) with the objective of
improving the quality of our portfolio and reducing the volatility
of our earnings. This process will take time, but will benefit all
of our constituents. Ambac�s business has been and will continue to
encompass more than U.S public finance. Diversity of our business
strengthens Ambac, as acknowledged by the rating agencies. In the
U.S. we will continue to insure student loans, utility issues and
certain other structured finance issues that meet our enhanced risk
parameters. Outside the U.S., Ambac will continue to insure
securities funding hospitals, roads, schools, public transportation
and so forth. In undertaking this process, Ambac also had to deal
with a lot of misinformation and self-serving agendas of others in
the marketplace. It is important to understand that Ambac is in the
risk business and we are operating today in the most stressed
credit environment that I can recall in my 40-year involvement with
the financial marketplace. It is useful at this point to clarify
the reality. Loss projections that you read and hear about are
simply that � projections. They are based on limited data and the
numbers that get the headlines are stress case losses, not expected
losses. We remain confident that Ambac will weather the storm. With
over $15 billion in claims-paying resources behind all we do, no
investor in an Ambac-insured security should worry that they will
miss a principal or interest payment. Ambac never considered a
�bailout.� Bailouts are for firms that are facing insolvency. Many
parties offered us capital alternatives, but, as I have said
publicly, their terms were at an unacceptably high price. We are
proud that, ultimately, we addressed our capital issues with a
market-based solution that balanced, we believe, the interests of
many of our constituents. Lost amidst all the noise and market
volatility is the simple fact that most of Ambac�s insurance
portfolio is performing strongly. The issues in Ambac�s portfolio
arise largely from four transactions, the �CDO-squareds,� that
account for the vast majority of our potential losses. Through this
difficult period, we have been reminded of the importance of
transparency. Ambac has always been committed to being very
transparent. We have led the way in disclosure of our portfolio,
especially on our web site. What does the future hold for Ambac? We
see attractive opportunities in a number of sectors. The simple
fact is that the last few years were characterized by tight credit
spreads and very aggressive competition � an extremely challenging
pricing environment. Today the reverse is true. Credit spreads have
widened dramatically and substantial financial guarantee capacity
has exited the market. The recent entries of Berkshire Hathaway and
financier Wilbur Ross into the municipal markets fully validate
this. These new entrants into our industry reinforce our perception
that the pricing environment for credit insurance has improved. In
closing, I want to thank our employees who have dedicated
themselves to going the extra mile throughout this unprecedented
time. I also want to single out with gratitude certain individuals
who supported Ambac. These include Sean Dilweg and his staff at the
Wisconsin Office of the Commissioner of Insurance, Eric Dinallo and
the New York State Insurance Department, as well as other
government officials. Ultimately, with their support, Ambac was
able to execute a market-based solution for its capital needs.
Ambac now has the potential to move forward to realize the benefits
of the underlying strength of Ambac�s basic business model. I
recognize that restoring confidence in Ambac is essential to moving
forward. We will accomplish this by maintaining the highest ratings
possible, emphasizing a risk-centric culture and building on our
strong franchise and expertise. We look forward to doing so and
thank you for your support. Sincerely, Michael A. Callen Chairman
& Chief Executive Officer Forward-Looking Statements This
release contains statements that may constitute "forward-looking
statements" within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Any or all of
management�s forward-looking statements here or in other
publications may turn out to be wrong and are based on Ambac�s
management�s current belief or opinions. Ambac�s actual results may
vary materially, and there are no guarantees about the performance
of Ambac�s securities. Among events, risks, uncertainties or
factors that could cause actual results to differ materially are:
(1)�changes in the economic, credit, foreign currency or interest
rate environment in the United States and abroad; (2)�the level of
activity within the national and worldwide credit markets;
(3)�competitive conditions and pricing levels; (4)�legislative and
regulatory developments; (5)�changes in tax laws; (6) changes in
our business plan, including changes resulting from our decision to
discontinue writing new business in the financial services area, to
significantly reduce new underwriting of structured finance
business and to discontinue all new underwritings of structured
finance business for six months; (7)�the policies and actions of
the United States and other governments; (8)�changes in capital
requirements whether resulting from downgrades in our insured
portfolio or changes in rating agencies� rating criteria or other
reasons; (9)�changes in Ambac�s and/or Ambac Assurance�s credit or
financial strength ratings; (10)�changes in accounting principles
or practices relating to the financial guarantee industry or that
may impact Ambac�s reported financial results; (11)�inadequacy of
reserves established for losses and loss expenses; (12)�default by
one or more of Ambac Assurance�s�portfolio investments, insured
issuers, counterparties or reinsurers; (13)�credit risk throughout
our business, including large single exposures to reinsurers;
(14)�market spreads and pricing on insured collateralized debt
obligations (�CDOs�) and other derivative products insured or
issued by Ambac; (15)�credit risk related to residential mortgage
securities and CDOs; (16)�the risk that holders of debt securities
or counterparties on credit default swaps or other similar
agreements seek to declare events of default or seek judicial
relief or bring claims alleging violation or breach of covenants by
Ambac or one of its subsidiaries; (17)�the risk that our
underwriting and risk management policies and practices do not
anticipate certain risks and/or the magnitude of potential for loss
as a result of unforeseen risks; (18)�the risk of volatility in
income and earnings, including volatility due to the application of
fair value accounting, or FAS 133, to the portion of our credit
enhancement business which is executed in credit derivative form;
(19)�operational risks, including with respect to internal
processes, risk models, systems and employees; (20)�the risk of
decline in market position; (21)�the risk that market risks impact
assets in our investment portfolio; (22)�the risk of credit and
liquidity risk due to unscheduled and unanticipated withdrawals on
investment agreements; (23)�changes in prepayment speeds on insured
asset-backed securities; (24) factors that may influence the amount
of installment premiums paid to Ambac; (25)�the risk that we may be
required to raise additional capital, which could have a dilutive
effect on our outstanding equity capital and/or future earnings;
(26)�our ability or inability to raise additional capital,
including the risks that regulatory or other approvals for any plan
to raise capital are not obtained, or that various conditions to
any plan, either imposed by third parties or imposed by Ambac or
its Board of Directors, are not satisfied and thus potentially
necessary capital raising transactions do not occur, or the risk
that for other reasons the Company cannot accomplish any
potentially necessary capital raising transactions; (27)�the risk
that Ambac�s holding company structure and certain regulatory and
other constraints, including adverse business performance, affect
Ambac�s ability to pay dividends and make other payments; (28)�the
risk of litigation and regulatory inquiries or investigations, and
the risk of adverse outcomes in connection therewith, which could
have a material adverse effect on our business, operations,
financial position, profitability or cash flows; (29)�other
additional factors described in the Risk Factors section of Ambac�s
Current Report on Form 8-K dated March 12, 2008 and in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2007 and
in and also disclosed from time to time by Ambac in its subsequent
reports on Form 10-Q and Form 8-K, which are or will be available
on the Ambac web site at www.ambac.com and at the SEC�s web site,
www.sec.gov; and (30)�other risks and uncertainties that have not
been identified at this time. Readers are cautioned that
forward-looking statements speak only as of the date they are made
and that Ambac does not undertake to update forward-looking
statements to reflect circumstances or events that arise after the
date the statements are made. You are therefore advised to consult
any further disclosures we make on related subjects in Ambac�s
reports to the SEC. Ambac Financial Group, Inc., headquartered in
New York City, is a holding company whose affiliates provide
financial guarantees and financial services to clients in both the
public and private sectors around the world. Ambac's principal
operating subsidiary, Ambac Assurance Corporation, a guarantor of
public finance and structured finance obligations, has earned
triple-A ratings from Moody's Investors Service, Inc. and Standard
& Poor's Ratings Services; and a double-A rating from Fitch,
Inc. Moody's, Standard & Poor's and Fitch all maintain a
�negative outlook.� Ambac Financial Group, Inc. common stock is
listed on the New York Stock Exchange (ticker symbol ABK).
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