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Financial stocks rallied off their lows but remained in negative territory; the big winner of the day so far is Ambac (ABK) .

The bond insurer said on Friday that it had agreed to fork over $850 million in order to terminate an insurance agreement that covered $1.4 billion in CDOs (collateralized debt obligations). The CDOs have become the toxic waste in many companies' portfolios, forcing huge writedowns and losses.

Merrill Lynch


recently sold a large amount of the product to private equity firm Lone Star Equity. Happy investors pushed Ambac shares up 40.9% to $3.53.

Fellow insurer


(MBI) - Get MBIA Inc. Report

jumped 20.5% to $7.15 on the news, even though the company had not made a comparable deal on its toxic bonds. The stock jumped on hopes that it may.

Sallie Mae

(SLM) - Get SLM Corp Report

ticked up 27 cents to $16.24 after Congress approved legislation that would protect students from abusive lenders. The bill would also increase funding for graduate studies that primarily serve minorities and new programs for military veterans. Pell grant levels were increased as well.

The NYSE Financial Sector index fought back from its lows but was still declining 50.06 to 6,402.30 in the afternoon.

One loser that was also a winner was

NYSE Euronext


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. The stock exchange company reported an increase in income, but its earnings missed the estimates of analysts. NYSE Euronext also said that the American Stock Exchange deal would close in September instead of August. NYX plunged 15% to $40.16.


New York Post

reported that

Lehman Brothers


was in talks to sell roughly $30 billion in commercial mortgage assets. The Post also said that Lehman had hired investment adviser


(LAZ) - Get Lazard Ltd Class A Report

. Neither firm confirmed or denied the story. Lehman shares slid 2.3% to $16.95.

CME Group

(CME) - Get CME Group Inc. Class A Report

, home of the Chicago Board of Trade and the Chicago Mercantile Exchange, tumbled 8% to $331.52. CME made a $9.4 billion deal earlier in the year to buy



, the home of the New York Mercantile Exchange. Proxy firms have recommended shareholders approve the deal.

And finally, more lawsuits hit the courts against brokerage firm Morgan Keegan, owned by

Regions Financial

(RF) - Get Regions Financial Corporation Report

. A Memphis law firm filed suit alleging that funds managed by the firm lost value as CDOs values imploded. Regions gave back 11 cents to trade at $9.37.