Ambac Financial Group, Inc.
(NYSE: ABK) (Ambac) today announced a second quarter 2010 net loss of $57.6 million, or a net loss of $0.20 per share. This compares to a second quarter 2009 net loss of $2,368.8 million, or a net loss of $8.24 per share. The second quarter 2010 results reflect loss and loss expenses in consumer asset-backed securities, other structured finance exposures and a transportation transaction and a net operating loss in the financial services segment, partially offset by a positive change in fair value of credit derivatives. In 2009, Ambac’s second quarter results reflected significant loss and loss expenses related to the insured residential mortgage-backed securities (“RMBS”) portfolio, other-than-temporary impairment write downs of securities in its investment portfolios and an increase in its deferred tax asset valuation allowance.
Second Quarter 2010 Summary
Implementation of New Accounting Standards
- Net loss and loss expenses incurred amounted to $323.3 million for the current quarter, down from $1,230.8 million in the second quarter of 2009.
- Net change in fair value of credit derivatives was positive $202.2 million in the current quarter, up from $1.0 million in the second quarter 2009.
- The financial services segment recorded a $69.6 million operating loss primarily related to interest rate movements in the derivative products business.
- Statutory surplus of Ambac Assurance Corporation (“AAC”) increased to approximately $1.5 billion at June 30, 2010 from $160.2 million at March 31, 2010, driven primarily by the CDO of ABS commutation settlement on June 7, 2010.
Effective January 1, 2010, Ambac adopted Accounting Standards Update No. (“ASU”) 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”. The implementation of ASU 2009-17 on January 1, 2010, required Ambac to consolidate 83 additional VIEs resulting in an increase to shareholders' equity of $705 million. This adoption gain resulted from the initial recognition of all assets and liabilities of the newly consolidated VIEs at fair value in Ambac’s financial statements, while eliminating from our financial statements the related net insurance liabilities which are generally calculated using estimated future cash flows discounted at risk free interest rates. In March 2010, Ambac acquiesced to Office of the Commissioner of Insurance of the State of Wisconsin’s (“OCI’s”) request to establish a segregated account pursuant to Wisconsin statutes (the “Segregated Account”) for purposes of initiation of the rehabilitation of the Segregated Account and AAC allocated certain policies to the Segregated Account. This action resulted in Ambac no longer having the unilateral power to direct the activities of certain VIEs whose insurance policies were allocated to the Segregated Account and therefore those VIEs were de-consolidated in March 2010. The de-consolidation resulted in Ambac reversing the ASU 2009-17 transition effect for those specific transactions with the charge to Ambac’s Consolidated Statement of Operations amounting to $492.7 million in the first quarter of 2010.