Stock Alert for Ambac Financial Group Inc. (ABK)
Ambac Financial Group Inc. (ABK) is primarily a holding company. The Company, through its subsidiaries, provides 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 (Jul-28-10) | FY
2007 |
FY
2008 |
%
Chg |
Q4 2008 | Q4 2009 | %
Chg |
||
| Symbol | ABK | Revenue, $Mn | -4.22B | -2.75B | 34.8% | -202.2M | 566.9M | 380.4% |
| Current price | $1.01 | Gross marg. | n/a | n/a | n/a | n/a | n/a | n/a |
| 52wk Range: | $3.39-0.51 | Oper. margin | 120.1% | 199.9% | 66.4% | 0.6% | 20.5% | 3316% |
| Avg Vol (3m): | 22,677,500 | Net margin | 77.0% | 204.0% | 62.3% | 1.2% | 98.4% | 8100% |
| Market Cap. | 291.26M | |||||||
| Shares Outst. | 288.4M | EPS, $ | -31.56 | -22.31 | 29.3% | -8.14 | -1.93 | 76.3% |
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.
Financial Results
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.
Net Investment Income
Net investment income for the first quarter of 2010 was $117.6 million, representing an increase of 17% from $100.9 million in the first quarter of 2009. The increase was primarily due to an increase in the average yield of the portfolio as the mix of securities has shifted from primarily tax-exempt to a greater percentage of taxable securities. The rising yields on taxable securities include the impact from accretion of bond discounts on AAC-insured securities and RMBS securities previously written down to fair value as a result of other-than-temporary impairments in earlier periods. The impact from increasing yields was partially offset by an overall decrease in the asset base as claim payments on insured RMBS transactions and commutations and settlements of collateralized debt obligations of asset-backed securities (CDO of ABS) transactions over the past twelve months were greater than the cash inflows resulting from collections of financial guarantee premiums, fees, tax refunds and coupon receipts on invested assets.
Other-Than-Temporary Impairment Losses
Other-than-temporary impairment (“OTTI”) losses in the financial guarantee investment portfolio were ($31.3) million in the first quarter of 2010, compared to OTTI losses of ($744.7) million in the first quarter of 2009. The first-quarter 2010 OTTI loss was driven primarily by impairment write downs on ABK-wrapped RMBS securities within its investment portfolio as well as student loan securities that management identified for sale as of March 31, 2010. The first-quarter 2009 OTTI impairment loss was driven by write-downs during the quarter of certain Alt-A RMBS securities within the investment portfolio that management believed to be credit impaired.
Net Change in Fair Value of Credit Derivatives
The net change in fair value of credit derivatives, which comprises realized gains/(losses) and other settlements from credit derivatives and unrealized gains/(losses) on credit derivatives, was a loss of ($167.1) million for the first quarter of 2010, compared to a gain of $1,545.9 million for the first quarter of 2009.
Realized gains/(losses) and other settlements from credit derivative contracts represent the normal accretion into income of fees received for transactions executed in credit derivative format, offset by loss and settlement payments on such transactions. Net realized gains/(losses) and other settlements from credit derivative contracts in the first quarter of 2010 and 2009 amounted to $9.9 million and $6.6 million, respectively.
Net unrealized gains/(losses) on credit derivative contracts were ($177.1) million in the first quarter of 2010, compared to net unrealized gains amounting to $1,539.2 million in the first quarter 2009. The net loss during the first quarter of 2010 is primarily the result of the impact of changes in AAC credit spreads since December 31, 2009, on the fair value of CDO of ABS transactions (ASC Topic 820 adjustment), partially offset by the net decrease in mark-to-market liabilities of other credit derivative transactions due to improvements in the average values of reference obligations. As of March 31, 2010, the fair value of CDO transactions named in the non-binding proposed settlement agreement entered into on March 24, 2010, approximates their expected settlement value. The net unrealized gains reported during the first quarter of 2009 resulted primarily from the effect of widening AAC credit spreads on the measurement of fair value of credit derivative liabilities during that period.
Financial Guarantee Loss Reserves
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.
Financial Services
The financial services segment comprises the investment agreement business and the derivative products business. Gross interest income less gross interest expense from investment and payment agreements, plus results from the derivative products business was ($54.4) million for the first quarter of 2010, down from ($6.1) million for the first quarter of 2009. The decrease was primarily driven by losses on terminations of swaps within the derivative products business. The interest rate swap and investment agreement businesses are in run-off.
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 (described above).
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 our press release dated March 25, 2010, and in our 10-K filed with Securities Exchange Commission 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.
| Financial Strength (Jul-28-2010) | Company | Industry | Sector | S&P 500 |
| Quick Ratio (MRQ) | – | 0.01 | 4.62 | 0.73 |
| Current Ratio (MRQ) | – | 0.01 | 8.38 | 0.88 |
| Long-Term Debt to Equity(MRQ) | – | 13.15 | 102.20 | 112.53 |
| Total Debt to Equity (MRQ) | – | 14.42 | 269.65 | 176.36 |
Source: Reuters.com, SEC Filings.
Analyst Consensus
This is the consensus forecast among 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 | 1 | 1 | 0 | 0 |
| Last year | 0 | 0 | 2 | 1 | 0 | 0 |
Source: www.ft.com
No consensus analysis data available.
Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=ABK
Investment Highlights
ABK recently announced that it has completed the sale of its advisory services subsidiary, RangeMark Financial Services Inc. to the company’s management. The sale was completed Friday, July 16, 2010. ABK will continue to contract with RangeMark for certain valuation services for a period of time.
ABK announced recently that the New York Stock Exchange (NYSE) has notified the Company that it has fallen below the NYSE’s continued listing standard relating to the price of its common stock. The NYSE requires that the average closing price of a listed Company’s common stock be at least $1.00 per share over a consecutive 30 trading-day period.
Under the NYSE’s rules, ABK has six months from the date of the NYSE notice to have a closing share price and 30 trading-day average share price of at least $1.00 in order to avoid the delisting of its shares. During this period, ABK’s common stock will continue to be traded on the NYSE, subject to ABK’s compliance with other NYSE continued listing requirements. As required by the NYSE in order to maintain the listing of its common shares, ABK has notified the NYSE of its intent to cure the price deficiency.
Source: http://www.ambac.com/
Technical Analysis
Source: http://stockcharts.com
ABK is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.
ABK is trading above its upper Bollinger Band. Relative to recent price action, the stock is currently overextended and due for either a pause or retracement.
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 | ||
| Jul-28-2010 | symbol | Share, $ | $ Mn | 2010 | 2011 | 2010 | 2011 |
| NYMAGIC Inc. | NYM | 25.45 | 216.31M | 4.52 | n/a | 0.99 | n/a |
| American Physicians Capital Inc. | ACAP | 41.09 | 391.35M | 11.04 | n/a | 2.69 | n/a |
| The PMI Group Inc. | PMI | 3.70 | 594.85M | n/a | n/a | 0.67 | n/a |
| Insurance Median | 400.83M | 7.78 | n/a | 1.45 | n/a | ||
| Ambac Financial Group Inc. | ABK | 1.01 | 291.26M | n/a | n/a | 0.06 | n/a |
Source: Thomson Financial
Insider Trading Activity
| NET SHARES PURCHASE ACTIVITY
Inside Purchases – Last 6 Months |
||
| Shares | Transaction | |
| Purchases | n/a | 0 |
| Sales | 101,197 | 5 |
| Net Shares Purchased (Sold) | (101,197) | 5 |
| Total Insider Shares Held | 14.5M | n/a |
| % Net Shares Purchased (Sold) | (0.7%) | n/a |
| Net Institutional Purchases — Prior Qtr to Latest Qtr | |
| Shares | |
| Net Shares Purchased (Sold) | (38,335,800) |
| % Change in Institutional Shares Held | (102.21%) |
Source: Yahoo Finance
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