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Ambac posts 2Q loss despite RMBS improvements

Unpaid claims prevent profit

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Ambac Assurance Company (AMBC), provider of financial guarantees of, among other things, residential mortgage backed securites, posted a loss of the second quarter.

The net loss in the second quarter 2014 was $207.9 million, or $4.61 per diluted share, and operating losses were $113.3 million, or $2.51 per diluted share. Included in second quarter 2014 net loss and operating losses was $308.1 million pre-tax, or $303.6 million net of tax, interest accrued since September 2012 related to unpaid Segregated Account claims. The $308.1 million pre-tax accrued interest and the $303.6 million net of tax accrued interest include interest accrued in the second quarter 2014 of $49.8 million and $48.8 million, respectively.

Ambac reported net income in the first quarter 2014 was $155.9 million, or $3.31 per diluted share, compared with $282.3 million, or $0.93 per diluted share, in the first quarter 2013.

"Our results in the second quarter were significantly impacted by the implementation of the previously announced amendments to the Rehabilitation Plan of the Segregated Account. In particular, our earnings would have been positive excluding the recognition of interest accrued on unpaid claims. Favorable loss development during the quarter reflected RMBS improvements, higher estimated representation and warranty remediation recoveries and net improvements in other structured credits," said Diana Adams, President and Chief Executive Officer.

"These positive developments were offset by the interest accrual, increased Puerto Rico reserves and higher student loan reserves. Going forward, we remain committed to our parallel strategic priorities.  We continue to focus on value creation initiatives at Ambac Assurance, while we also pursue opportunities to enhance value at Ambac, including through buying or building new businesses," Adams added.

To help fund the company's strategic priorities, Ambac is considering a monetization of a substantial portion of the $350 million of junior surplus notes issued to it by the Segregated Account upon its emergence from bankruptcy, the proceeds of which could be used for acquisitions, liability management and general corporate purposes.

Following the company's emergence from bankruptcy on May 1, 2013, the consolidated financial statements reflect the application of fresh start reporting incorporating, among other things, the discharge of debt obligations, issuance of new common stock, and fair value adjustments.

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