Daily Insurance Industry News
Daily Insurance Industry News
Sunday 26th of May 2019
March 6, 2008

Ambac plans rights issue as rescue consortium fails

by Gill Montia

Story link: Ambac plans rights issue as rescue consortium fails

Ambac lost around 20% of its share price yesterday, as efforts by a consortium of banks failed to provide a $3 billion injection of cash into the struggling mortgage bond insurer.

The insurer’s troubles began when estimates for claims it could face on the securities it underwrites rose to between $3 billion and $8 billion, as a result of the high level of defaults on sub-prime mortgages.

The company now plans to raise $1.5 billion in a rights issue. However, Ambac has warned that this may not be enough to maintain its top AAA credit rating with Moody’s and Standard & Poor’s.

Ambac insures around $556 billion of government and mortgage bonds and if it could not meet its obligations, the value of the securities it underwrites would plummet, leaving banks to write down substantial losses.

The failed rescue consortium included RBS, Barclays, Citigroup and UBS, all of which hold securities insured by Ambac.

Ambac has already lost its AAA rating with Fitch and last week the company announced that it would suspend writing new business for six months.

Other bonds insurers, including MBIA, are also seeking new capital to offset an inevitable rise in claims.

It is estimated that banks could be forced to write down up to $70 billion if leading bonds insurers, such as MBIA, Ambac and FGIC, lose their top credit ratings.


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