Ambac Responds to Article Related to Its Second Lien RMBS Exposure
22 Mai 2008 - 10:03PM
Business Wire
Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today responded to
a Credit Sights article published on May 21, 2008 that calls into
question the current level of Ambac�s loss reserves on its second
lien RMBS exposure. In the article Credit Sights opines that Ambac
will see continued deterioration within its second lien portfolio
and resultant losses could be massive given the nature of second
lien risk. The article refers to the Moody�s Special Report on
Subprime Second Lien RMBS dated May 12, 2008. In that report
Moody�s presented its estimates of minimum, average and maximum
cumulative loss assumptions for the asset class for vintage years
2005, 2006 and 2007. The Credit Sights article offers little
independent analysis, fails to consider the basic structural
arrangements of individual transactions (one cannot simply multiply
a cumulative loss assumption by net par outstanding to determine
ultimate loss) and does not attempt to reconcile to Moody�s
previously reported RMBS losses for Ambac. In response to the
article, Ambac has posted a presentation on its second lien
exposures on its web site at www.ambac.com and points out the
following: In estimating its reserves, Ambac analyzes its closed
end second lien (�CES�) and home equity line of credit (HELOC�)
exposures on a transaction by transaction basis using the most
recent actual performance data and projecting future performance
using �roll rate� analysis. Ambac�s assumptions in these asset
classes are conservative and include the following (see above
referenced presentation for further details): No burnout from peak
levels of roll rate (transition rate from 30-day delinquent to
60-day delinquent and so on) for 18 months; Conditional Prepayment
Rate (�CPR�) of 6% versus industry-wide assumptions of
approximately 10%; 100% severity (loss given default). Both the CES
and HELOC asset classes demonstrate clear segmentation within our
portfolios based on vintages and originators, particularly earlier
versus later vintages and bank versus non-bank originators. Ambac
discloses all of its poorly performing transactions in the above
referenced presentation. The remaining portfolio is performing
within expectations. To assume the worst performance on the entire
portfolio lacks an appropriate level of professional analytics and
is, therefore, irresponsible. Ambac has not factored in any
potential recovery related to its aggressive remediation plan
regarding these portfolios despite that fact that we have begun the
process of putting back loans that we believe do not fit the
various criteria represented by the originators. 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 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 such a 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 factors described in the Risk Factors section in
Part I, 1A of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 and in Part II, Item 1A of our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008, 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
website at www.ambac.com and at the SEC�s website, 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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