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Ambac Financial Group, Inc. Announces Third Quarter 2010 Results

AAC’s consolidated claims-paying resources amounts to approximately $7.9 billion as of September 30, 2010. This includes Ambac UK’s claims-paying resources of $1.0 billion, which will be available to AAC only to the extent Ambac UK receives approval from its regulator to dividend monies to AAC.

About Ambac

Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provided financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac filed for a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). The Company will continue to operate in the ordinary course of business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. As a result of the bankruptcy filing, Ambac Financial Group, Inc.’s common stock is no longer listed on the New York Stock Exchange (previously traded under ticker symbol ABK).

Ambac's principal operating subsidiary, Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations, has a Caa2 rating from Moody's Investors Service, Inc. and an R (regulatory intervention) financial strength rating from Standard & Poor's Ratings Services.

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 incorrect and are based on Ambac 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) the impact of the bankruptcy proceeding on the holders of Ambac securities; (2) the unlikely ability of Ambac Assurance to pay dividends to Ambac in the near term; (3) the risk that holders of debt securities or counterparties on credit default swaps or other similar agreements bring claims alleging that the rehabilitation of the Segregated Account constitutes an event of default under the applicable debt indenture or an event of default under the applicable ISDA contract; (4) adverse events arising from the Segregated Account Rehabilitation Proceedings, including the injunctions issued by the Wisconsin rehabilitation court to enjoin certain adverse actions related to the Segregated Account being successfully challenged as not enforceable; (5) litigation arising from the Segregated Account Rehabilitation Proceedings; (6) decisions made by the rehabilitator for the benefit of policyholders may result in material adverse consequences for Ambac’s securityholders; (7) potential of rehabilitation proceedings against Ambac Assurance, with resulting adverse impacts; (8) the risk that reinsurers may dispute amounts owed us under our reinsurance agreements; (9) possible delisting of Ambac’s common shares from the NYSE; (10) the risk that market risks impact assets in our investment portfolio or the value of our assets posted as collateral in respect of investment agreements and interest rate swap and currency swap transactions; (11) risks which impact assets in Ambac Assurance’s investment portfolio; (12) risks relating to determination of amount of impairments taken on investments; (13) credit and liquidity risks due to unscheduled and unanticipated withdrawals on investment agreements; (14) market spreads and pricing on insured collateralized loan obligations (“CLOs”) and other derivative products insured or issued by Ambac; (15) inadequacy of reserves established for losses and loss expenses, including our inability to realize the remediation recoveries included in our reserves; (16) Ambac’s financial position and the Segregated Account Rehabilitation Proceedings may prompt departures of key employees; (17) 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; (18) difficult economic conditions, which may not improve in the near future, and adverse changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (19) the actions of the U. S. Government, Federal Reserve and other government and regulatory bodies to stabilize the financial markets; (20) likely unavailability of adequate capital support and liquidity; (21) credit risk throughout our business, including credit risk related to residential mortgage-backed securities and CLOs and large single exposures to reinsurers; (22) default by one or more of Ambac Assurance’s portfolio investments, insured issuers, counterparties or reinsurers; (23) the risk that our risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (24) factors that may influence the amount of installment premiums paid to Ambac, including the imposition of the payment moratorium with respect to claims payments as a result of Segregated Account Rehabilitation Proceedings; (25) changes in prevailing interest rates; (26) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, required under the relevant derivative accounting guidance, to the portion of our credit enhancement business which is executed in credit derivative form, and due to the adoption of the new financial guarantee insurance accounting standard effective January 1, 2009, which, among other things, introduces volatility in the recognition of premium earnings and losses; (27) changes in accounting principles or practices that may impact Ambac’s reported financial results; (28) legislative and regulatory developments; (29) operational risks, including with respect to internal processes, risk models, systems and employees; (30) changes in tax laws and other tax-related risks; (31) other factors described in the Risk Factors section in Part I, Item 1A of Ambac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K, which are available on the Ambac website at www.ambac.com and at the SEC’s website, www.sec.gov; and (32) 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. and Subsidiaries
Consolidated Balance Sheets
September 30, 2010 and December 31, 2009
(Dollars in Thousands Except Share Data)
         
September 30, 2010 December 31, 2009
(unaudited)

Assets

 
Investments:
Fixed income securities, at fair value
(amortized cost of $5,599,075 in 2010 and $7,605,565 in 2009) $5,968,020 $7,572,570
Fixed income securities pledged as collateral, at fair value
(amortized cost of $190,453 in 2010 and $164,356 in 2009) 194,387 167,366
Short-term investments (amortized cost of $617,748 in 2010 and $962,007 in 2009) 617,748 962,007
Other (cost of $100 in 2010 and $1,278 in 2009) 100   1,278  
Total investments 6,780,255 8,703,221
 
Cash and cash equivalents 69,673 112,079
Receivable for securities sold 22,578 3,106
Investment income due and accrued 37,346 73,062
Premium receivables 2,802,811 3,718,158
Reinsurance recoverable on paid and unpaid losses 126,458 78,115
Deferred ceded premium 318,616 500,804
Subrogation recoverable 1,222,216 902,612
Deferred taxes - 11,250
Current income taxes - 421,438
Deferred acquisition costs 251,971 279,704
Loans 20,999 80,410
Derivative assets 298,757 496,494
Other assets 216,644 229,299
Variable interest entity assets:
Fixed income securities, at fair value 1,939,492 525,947
Restricted cash 1,952 1,151
Investment income due and accrued 1,230 4,133
Loans 17,201,665 2,635,961
Derivative assets 4,362 109,411
Other assets 11,214   12  
Total assets $31,328,239   $18,886,367  
 

Liabilities and Stockholders' Deficit

 
Liabilities:
Unearned premiums $4,442,271 $5,687,114
Loss and loss expense reserve 5,510,541 4,771,684
Ceded premiums payable 182,725 291,843
Obligations under investment and payment agreements 814,389 1,177,406
Obligations under investment repurchase agreements 101,807 113,527
Current taxes 22,449 -
Long-term debt 1,823,327 1,631,556
Accrued interest payable 90,975 47,125
Derivative liabilities 486,878 3,536,858
Other liabilities 138,301 248,655
Payable for securities purchased 2,486 2,074
Variable interest entity liabilities:
Accrued interest payable 651 3,482
Long-term debt 17,335,034 3,008,628
Derivative liabilities 1,581,681 -
Other liabilities 12,304   60  
Total liabilities 32,545,819   20,520,012  
 
Stockholders' deficit:
Ambac Financial Group, Inc.:
Preferred stock - -
Common stock 3,080 2,944
Additional paid-in capital 2,186,372 2,172,656
Accumulated other comprehensive income (loss) 347,738 (24,827 )
Accumulated deficit (3,978,701 ) (3,878,015 )
Common stock held in treasury at cost (430,600 ) (560,543 )
Total Ambac Financial Group, Inc. stockholders' deficit (1,872,111 ) (2,287,785 )
 
Non-controlling interest: 654,531   654,140  
Total stockholders' deficit (1,217,580 ) (1,633,645 )
Total liabilities and stockholders' deficit $31,328,239   $18,886,367  
 
Number of shares outstanding (net of treasury shares) 302,112,225   287,598,189  
 
 
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three and Nine Months Ended September 30, 2010 and 2009
(Dollars in Thousands Except Share Data)
             
Three Months Ended Nine Months Ended
September 30, September 30,

2010

  2009 2010   2009
Revenues:
Financial Guarantee:
Net premiums earned $143,085 $238,401 $435,321 $612,945
Net investment income 69,840 137,645 256,438 364,026
Other-than-temporary impairment losses:
Total other-than-temporary impairment losses (8,461 ) (32,529 ) (49,706 ) (1,452,664 )
Portion of loss recognized in other comprehensive income 1,877   -   4,286   -  
Net other-than temporary impairment losses recognized in earnings (6,584 ) (32,529 ) (45,420 ) (1,452,664 )
 
Net realized investment gains 2,053 86,916 75,473 93,075
 
Change in fair value of credit derivatives:
Realized gains and (losses) and other settlements 4,862 (732,857 ) (2,762,509 ) (731,287 )
Unrealized gains 4,550   2,865,761   2,806,963   4,411,004  
Net change in fair value of credit derivatives 9,412 2,132,904 44,454 3,679,717
 
Other income 186,859 268,836 100,713 309,780
Income (loss) on variable interest entities 26,377 41,096 (504,873 ) 41,140
Financial Services:
Investment income 8,425 18,454 26,554 58,342
Derivative products (78,368 ) (222,450 ) (207,552 ) (280,868 )
Other-than-temporary impairment losses:
Total other-than-temporary impairment losses - (11,660 ) (3,079 ) (283,858 )
Portion of loss recognized in other comprehensive income -   -   -   -  
 
Net other-than temporary impairment losses recognized in earnings -   (11,660 ) (3,079 ) (283,858 )
Net realized investment gains 464 28,109 67,706 142,345
Net change in fair value of total return swaps - 6,902 - 18,573
Net mark-to-market (losses) gains on non-trading derivatives - (6,907 ) (14,295 ) 783
Corporate and Other:
Other income 114 1,109 1,575 33,325
Net realized (losses) gains (521 ) -   10,172   33  
 
Total revenues 361,156   2,686,826   243,187   3,336,694  
 
Expenses:
Financial Guarantee:
Loss and loss expenses 165,396 459,213 577,874 2,429,890
Underwriting and operating expenses 41,200 28,012 150,627 133,466
Interest expense 27,492 - 34,378 -
Financial Services:
Interest on investment and payment agreements 3,951 6,433 13,742 27,533
Operating expenses 3,460 3,316 10,211 10,808
Corporate and Other:
Interest 29,878 29,918 89,634 89,601
Other expenses 13,695   5,975   38,288   6,659  
 
Total expenses 285,072   532,867   914,754   2,697,957  
 
Pre-tax income (loss) from continuing operations 76,084 2,153,959 (671,567 ) 638,737
Provision (benefit) for income taxes 65   (34,284 ) 50   1,211,477  
 
Net income (loss) 76,019 2,188,243 (671,617 ) (572,740 )
 
Less: net income (loss) attributable to noncontrolling interest 13   (14 ) (13 ) (16 )
 
Net income (loss) attributable to Ambac Financial Group, Inc. $76,006   $2,188,257   ($671,604 ) ($572,724 )
 
 
Net income (loss) per share attributable to Ambac Financial Group, Inc.
common shareholders $0.25   $7.58   ($2.29 ) ($1.99 )
 
Net income (loss) per diluted share attributable to Ambac Financial Group, Inc.
common shareholders $0.25   $7.58   ($2.29 ) ($1.99 )
 
 
Weighted average number of common shares outstanding:
 
Basic

 302,177,506

 

 288,770,269

 

 293,542,268

 

 287,647,272

 
Diluted

 302,177,506

 

 288,770,269

 

 293,542,268

 

 287,647,272

 




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