Ambac ceases writing new business as rescue falters

by Gill Montia

Story link: Ambac ceases writing new business as rescue falters

Ambac Financial Group, the struggling US bond insurer, has received a further blow with the news that Wilbur Ross, the billionaire investor with the potential to rescue the company, is investing $1 billion in a competitor, Assured Guaranty.

Unlike Ambac, Assured Guaranty has kept its AAA credit rating with all the leading rating agencies, having less exposure to high-risk sub-prime mortgage bonds.

Over the weekend, Ambac announced that it would cease writing new business for six months and cut its dividend, from 7 cents to 1 cent.

The move, combined with Mr Ross’s injection of cash could leave Assured Guaranty in a strong position to secure a larger share of the new underwriting turned away by Ambac.

Mr Ross has not ruled out further investments in failing bond insurers, such as MBIA and Ambac, but it appears that Assured Guaranty has become his main focus.

Meanwhile, the consortium of banks involved in the rescue of Ambac continue their deliberations.

Barclays and Royal Bank of Scotland are both involved in a plan to bail out the company but it is questionable whether the $3 billion on offer will be sufficient.

Ambac insures many of the bonds owned by the members of the consortium and the value of the bonds will plummet should Ambac’s liquidity be seriously questioned.

According to some analysts, the deterioration of the bond market could leave Ambac facing claims of $8 billion.