Ambac Financial Group, Inc. Announces Second Quarter 2010 Results
Other-Than-Temporary Impairment Losses
Other-than-temporary impairment (“OTTI”) losses in the financial guarantee investment portfolio were $7.5 million in the second quarter of 2010, compared to OTTI losses of $675.4 million in the second quarter of 2009. The second quarter 2010 OTTI loss was driven primarily by impairment write downs on AAC-wrapped RMBS securities within its investment portfolio. The second quarter 2009 OTTI impairment loss was driven by write-downs of certain RMBS securities rated below investment grade and tax exempt securities within the investment portfolio that management intended to sell in connection with its revised investment strategies.
Net Change in Fair Value of Credit Derivatives
The net change in fair value of credit derivatives, which comprises realized gains/(losses) and other settlements from credit derivatives and unrealized gains/(losses) on credit derivatives, was a gain of $202.2 million for the second quarter of 2010, compared to a gain of $1.0 million for the second quarter of 2009.Realized losses and other settlements from credit derivative contracts represent the normal accretion into income of fees received for transactions executed in credit derivative format, offset by loss and settlement payments on such transactions. Net realized losses and other settlements from credit derivative contracts in the second quarter of 2010 and 2009 amounted to $2,777.3 million and $5.0 million, respectively. The net realized losses in the second quarter 2010 relate primarily to the counterparty settlement of the CDO of ABS portfolio that was announced on June 7, 2010. Ambac paid in the aggregate, cash of $2.6 billion and $2.0 billion of newly issued surplus notes to several counterparties to settle the $16.4 billion of CDO of ABS exposure outstanding at that time. In addition, Ambac settled other exposures for $186.5 million. Net unrealized gains on credit derivative contracts in the second quarter of 2010 and 2009 amounted to $2,979.5 million and $6.0 million, respectively. The net unrealized gain during the second quarter of 2010 is primarily the result of reclassification of unrealized losses to realized losses resulting from the commutations referenced above. Additionally, the unrealized gains were impacted by the net decrease in mark-to-market liabilities of the remaining credit derivative portfolio due to higher valuation adjustments to reflect Ambac’s own credit risk. Beginning in the second quarter 2010, the Ambac credit valuation adjustment is internally estimated using relevant data points, including the final settlement value of AAC credit default swaps (determined through auction in June 2010) and quoted prices of securities guaranteed by AAC, which indicate the market’s view of the recovery rate on AAC’s insurance obligations.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV