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Ambac Financial Group, Inc. Announces Second Quarter 2010 Results

Financial Services

The financial services segment comprises the investment agreement business and the derivative products business. Gross interest income less gross interest expense and operating expenses from investment and payment agreements, plus operating results from the derivative products business was ($69.6) million for the second quarter of 2010, down from ($37.1) million for the second quarter of 2009. The decrease was primarily driven by the impact of declining interest rates on the financial services derivative portfolio during the second quarter of 2010, partially offset by lower termination losses on canceled swaps and valuation adjustments relating to Ambac’s credit risk. Beginning in the second half of 2009, the financial services segment has been positioned to record gains in a rising interest rate environment in order to provide a hedge against certain exposures within the financial guarantee segment. The interest rate swap and investment agreement businesses are in run-off.

Balance Sheet and Liquidity

Total assets decreased by approximately $5.8 billion during the second quarter of 2010, from $35.8 billion at March 31, 2010 to $30.0 billion at June 30, 2010, primarily due to the cash outflow related to the commutation of the CDO of ABS portfolio and other exposures discussed above, and the reduction of VIE assets by approximately $2.6 billion, related primarily to commuted CDOs of ABS that had been consolidated in compliance with ASU 2009-17 in the previous quarter.

The fair value of the consolidated non-VIE investment portfolio decreased from $9.7 billion (amortized cost of $9.6 billion) as of March 31, 2010 to $6.6 billion (amortized cost of $6.3 billion) as of June 30, 2010. The decrease was primarily driven by the cash outflow related to the commutations of the CDO of ABS portfolio and other exposures, discussed above, partially offset by generally increased market values of securities in the financial guarantee investment portfolio.

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