Shares traded today reflect a turnover of more than two times those outstanding -- it's hard to imagine that so many people have even heard of Ambac. The stock traded at a high of $3.39 today.
A primer: Ambac is a bond insurer in run-off mode. It has a junk rating. In early March, Ambac Assurance, its main subsidiary, filed 2009 financial statements that showed continued operating losses and deteriorating cash flow. Three weeks ago, concerned about the complete failure of the insurer, Wisconsin's insurance regulator, called the OCI, seized control of a large portion of Ambac Assurance.
Given stability by the OCI, Ambac Assurance is now completing negotiations to commute billions of dollars of collateralized debt obligations with its counterparties.
In the meantime, Ambac finally released its 2009 financial statements. On the back of a profit generated from a one-off tax rebate and revalued derivatives, the stock didn't just pop -- it exploded. The reaction was overdone and unwarranted. Remember that the 2009 financials reflect the period before the OCI took its action.
analyst note issued yesterday concluded that Ambac still has no value. (Ambac's 2009 financials show a book value per share of negative $7.95.) It cites the liquidity problems, the dilatory effect of the OCI action and potential default by Ambac on its debt maturity in 2011 as well as key staff losses. JPMorgan also mentioned credit default swap defaults causing accelerated payments, but the OCI's move is intended to eradicate that possibility, so this part could be considered unduly conservative or even alarmist.
Until first-quarter numbers are available, only risk-crazed investors ought to buy Ambac.
-- Reported by Gavin Magor in Jupiter, Fla.
Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.