Stock Alert for Ambac Financial Group Inc. (ABK)
Ambac Financial Group Inc. (NYSE: ABK)
Ambac Financial Group Inc. (ABK) is primarily a holding company operating through its subsidiaries to provide financial guarantees and financial services to clients in both the public and private sectors, worldwide. ABK’s activities are divided into two business segments. The Financial Guarantee segment provides financial guarantees (including credit derivatives) for public finance, structured finance and other obligations. The Financial Services segment provides investment agreements, funding conduits, interest rate, total return and currency swaps, principally to clients of the financial guarantee business. During the year ended December 31, 2008, the Company discontinued writing new investment agreements and derivative products in its Financial Services segment. Its existing investment agreement and derivative product portfolios are in active runoff, which may include transaction terminations, settlements, restructuring, transfers and natural attrition as contracts mature.
Ambac Financial Group was founded in 1971 and is headquartered in New York, New York.
| Share Statistics (7-June-10) | FY
2008 |
FY
2009 |
%
Chg |
Q4 2008 | Q4 2009 | %
Chg |
||
| Symbol | ABK | Revenue, $Mn | -2753.49% | 3,911.20% | 42.0% | -202.24 | 566.60 | 180.2% |
| Current price | $1.03 | Gross marg. | n/a | n/a | n/a | n/a | n/a | n/a |
| 52wk Range: | 0.51-3.39 | Oper. margin | n/a | 22.0% | n/a | n/a | 20.5% | n/a |
| Avg Vol (3m): | 54,473,300 | Net margin | 203.7% | -0.4% | n/a | 1,157.4% | 98.5% | n/a |
| Market Cap. | 297.03M | |||||||
| Shares Outstanding | 288.38M | EPS, $ | -22.31 | -0.05 | -99.8% | -8.14 | 1.93 | -123.7% |
Source: Reuters.com, SEC Filings.
Financial Summary
ABK recently announced first quarter 2010 net loss of $690.1 million, or net loss of $2.39 per share. This compares to a first quarter 2009 net loss of $392.2 million, or net loss of $1.36 per share. The first quarter 2010 results reflect a loss reported as a result of a new consolidations accounting standard. In 2009, ABK’s first-quarter results reflected a large positive change in fair value of credit derivatives offset by loss and loss adjustment expenses primarily related to residential mortgage-backed securities (RMBS) exposure, other than temporary impairment write downs of RMBS securities in the investment portfolios and a $600 million increase in the deferred tax asset valuation allowance.
Quarter Summary
The Company recorded a $495.1 million loss considered to be non-recurring as it results from the deconsolidation of a number of variable interest entities. Excluding the effect of this non-recurring item, ABK would have reported a net loss of $195.0 million, or net loss of $0.68 per share.
Net change in fair value of credit derivatives was negative $167.1 million.
Net loss and loss expenses incurred amounted to $89.2 million for the current quarter, down considerably from the first quarter of 2009.
Statutory surplus of Ambac Assurance Corp. (AAC) was reduced to approximately $160 million at March 31, 2010, from $801.9 million at December 31, 2009.
Net Premiums Earned
Net premiums earned for the first quarter of 2010 were $125.2 million, down 36% from $196.8 million earned in the first quarter of 2009. Net premiums earned include accelerated premiums, which result from calls, terminations and other accelerations recognized during the quarter. Accelerated premiums were $12.1 million in the first quarter of 2010, down 70% from $41.0 million in the first quarter 2009. Normal net premiums earned, which exclude accelerated premiums, were $113.1 million in the first quarter of 2010, down 27% from $155.8 million in the first quarter of 2009. Normal net premiums earned for the period have been negatively impacted by no new business written and the high level of refundings and terminations over the past two years, as well as non-recognition of premiums earned on VIEs that have been consolidated as a result of implementation of ASU 2009-17 effective January 1, 2010.
Total net loss and loss expenses were $89.2 million in the first quarter of 2010, compared to $739.8 million in the first quarter of 2009. Losses and loss expenses in the first quarter of 2010 were primarily related to credit deterioration in the second-lien segment of the insured RMBS portfolio and student loan transactions, partially offset by net improvement in certain first-lien RMBS transactions. First quarter of 2009 loss and loss expenses were driven by continued deterioration in the performance of the RMBS portfolio, most prominently in the first-lien product.
Total net insurance claims paid in the first quarter of 2010 were $231.7 million, related primarily to RMBS transactions. Excluded from claims paid are amounts that were unpaid in late March as a result of the moratorium imposed by the OCI on March 24, 2010, amounting to $130.1 million. Total insurance claims paid and unpaid (due to the OCI moratorium) total to $361.8 million. Total net claims paid in the first quarter of 2009 were $312.3 million, primarily related to second-lien RMBS transactions.
Loss and loss expense reserves for all RMBS insurance exposures as of March 31, 2010, were $2,616.8 million. RMBS reserves are net of $2,069.2 million of estimated remediation recoveries. The estimate of remediation recoveries related to material representation and warranty breaches increased from $2,026.3 million as of December 31, 2009, primarily as a result of breaches identified during the re-underwriting of an additional transaction. ABK has initiated and may continue to initiate lawsuits seeking compliance with the repurchase obligations in the securitization documents with respect to sponsors who disregard their obligations to repurchase. Additionally, ABK is in the process of re-underwriting additional transactions that have drastically underperformed expectations and the forensic results of those transactions will be available over the next few quarters.
Balance Sheet and Liquidity
Total assets increased by approximately $16,929.3 million during the first quarter of 2010, primarily due to the consolidation of certain trusts that AAC has insured and consolidated under accounting pronouncement ASU 2009-17.
The fair value of the consolidated non-VIE investment portfolio increased from $8.7 billion (amortized cost of $8.7 billion) as of December 31, 2009, to $9.7 billion (amortized cost of $9.6 billion) as of March 31, 2010. The increase was driven by the receipt of a $440 million tax refund during the quarter, approximately $400 million of securities purchased at quarter end, not yet paid (offset to “Payable for securities purchased” in Liabilities portion of balance sheet), and to a lesser extent, generally increased market values of securities in the financial guarantee investment portfolio.
The financial guarantee non-VIE investment portfolio had a fair value of $8.2 billion (amortized cost of $8.0 billion) as of March 31, 2010, and included $2.4 billion of short-term securities. The portfolio consists of high quality municipal bonds, Treasuries, U.S. Agencies and Agency MBS as well as mortgage and asset-backed securities.
Cash, short-term securities and bonds at the holding company amounted to $107.3 million as of March 31, 2010. ABK’s annual debt service costs amount to approximately $89.0 million. As a result of the recent actions taken by OCI (as discussed in the Company’s press release dated March 25, 2010, and in its 10-K filed with SEC on April 9, 2010), management believes that it is highly unlikely that AAC will be able to make dividend payments to ABK for the foreseeable future.
Source: Ambac Financial Group Inc.
| Financial Strength (07-June-2010) | Company | Industry | Sector | S&P 500 |
| Quick Ratio (MRQ) | – | 0.00 | 3.38 | 0.81 |
| Current Ratio (MRQ) | – | 0.00 | 6.27 | 0.96 |
| LT Debt to Equity (MRQ) | – | 11.41 | 90.56 | 133.71 |
| Total Debt to Equity (MRQ) | – | 12.34 | 226.70 | 199.57 |
| Interest Coverage (TTM) | – | 0.02 | -2.90 | 41.36 |
Source: Reuters.com, SEC Filings.
Analyst Consensus
| Buy | Outperform | Hold | Underperform | Sell | No Opinion |
This is the consensus forecast amongst two polled investment analysts. Against the Ambac Financial Group Inc company.
| Analyst Detail | Buy | Outperform | Hold | Underperform | Sell | No Opinion |
| Latest | 0 | 0 | 1 | 1 | 0 | 0 |
| 4 weeks ago | 0 | 0 | 1 | 1 | 0 | 0 |
| 2 months ago | 0 | 0 | 1 | 1 | 0 | 0 |
| 3 months ago | 0 | 0 | 2 | 1 | 0 | 0 |
| Last year | 0 | 0 | 2 | 1 | 0 | 0 |
Source: www.ft.com
Investment Highlights
ABK is a holding company whose affiliates provided financial guarantees and financial services to clients in both the public and private sectors around the world. Its principal operating subsidiary, Ambac Assurance Corp., a guarantor of public finance and structured finance obligations, has a Caa2 rating under review for possible upgrade from Moody’s Investors Service Inc. and an R (regulatory intervention) financial strength rating from Standard & Poor’s Ratings Services.
Just last month, the Company announced that it regained compliance with the New York Stock Exchange (NYSE) minimum share price listing requirement. The NYSE notified ABK that its average stock price for the 30-trading days ended April 30, 2010, was above the NYSE’s minimum requirement of $1.00 per share. It was on December 8, 2009, when the Company was notified by the NYSE that the average closing price of its common stock had declined below a consecutive 30-trading-day average price of $1.00 per share.
ABK has announced its board of directors has set the 2010 Annual Meeting of Stockholders for Monday, June 14, 2010, at 1:00 p.m. in New York City. The record date for determining stockholders entitled to notice of, and to vote at, the annual meeting was the close of business, April 20, 2010.
Reuters recently reported that sellers of protection on assets guaranteed by Ambac Assurance Corp. will need to pay out 80% of the amount of insurance they sold, after an auction was held on Friday to set a value on its credit default swaps (CDS). CDS on ABK’s guaranteed portfolio are worth 20 cents on the dollar, which means protection sellers will need to pay buyers $8 million per $10 million of insurance they sold.
According to the report, the assets included in the auction are residential mortgage and home equity loan-backed securities issued by Bear Stearns and Countrywide Financial and defaulted bonds issued by the bankrupt Las Vegas monorail. Wisconsin state regulators caused payments on the CDS when they seized Ambac Financial Group’s bond insurance unit’s toxic assets in March. Net volumes of about $2.3 billion are outstanding on the contracts.
Technical Analysis
Source: http://stockcharts.com
Friday, ABK closed below its 13-day moving average. This is generally considered to be an indication of a bearish trend.
ABK is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.
ABK’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below zero, which suggests that the underlying moving averages are bearish.
Comparative Analysis
| Company Name | Ticker | Price per | Mrkt. Cap. | P/E | P/S | ||
| June-07-2010 | symbol | Share, $ | $ Mn | 2010 | 2011 | 2010 | 2011 |
| MBIA Inc. | MBI | 5.96 | 1,220 | n/a | 4.58 | 1.21 | 1.27 |
| Assured Guaranty Ltd. | AGO | 13.29 | 2,450 | 4.71 | 3.39 | 1.51 | 1.51 |
| The PMI Group Inc. | PMI | 3.77 | 312.95 | n/a | n/a | 0.48 | 0.52 |
| CNA Surety Corp. | SUR | 15.77 | 698.66 | 7.51 | 7.00 | 1.71 | 1.67 |
| Median | 6.11 | 4.58 | 1.36 | 1.39 | |||
| Ambac Financial Group Inc. | ABK | 1.03 | 297.03 | n/a | 0.26 | n/a | n/a |
Source: Thomson Financial
Insider Trading Activity
| NET SHARES PURCHASE ACTIVITY
Inside Purchases – Last 6 Months |
||
| Shares | Transaction | |
| Purchases | n/a | 0 |
| Sales | 1,500 | 1 |
| Net Shares Purchased (Sold) | (1,500) | 1 |
| Total Insider Shares Held | 14.76M | n/a |
| % Net Shares Purchased (Sold) | 0.0% | n/a |
| Net Institutional Purchases — Prior Qtr to Latest Qtr | |
| Shares | |
| Net Shares Purchased (Sold) | (38,070,900) |
| % Change in Institutional Shares Held | (95.7%) |
Source: Yahoo Finance
DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice.
The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities. We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.
Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report. Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.
Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.
Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.
We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.
To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).
We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.
