AmbacÕ 3Q income plummets 64%

Falls from $231M in 2013 to $82.5M in 2014

Ambac Assurance Company (AMBC), provider of financial guarantees of residential mortgage backed securities among other things, posted a net income of $82.5 million in the third quarter, falling from $231 million in the third quarter of 2013.

The company reported a net income of $1.77 per diluted share in 2014’s third quarter, compared to $4.98 per diluted share in the same time period last year.

While the company’s net income was down 64% year-over-year, Ambac’s third quarter performance was up dramatically over its second quarter results, in which the company posted a net loss of $207.9 million.

Ambac reported that its operating income in the third quarter was $142.7 million, or $3.06 per diluted share, compared to $193.4 million, or $4.17 per diluted share in the same period last year.

“Net income and operating earnings declined in the third quarter 2014 compared with the third quarter 2013 primarily because of a lower benefit for loss and loss expenses and lower derivative product revenues, partially offset by higher net investment income,” the company said in its earnings release. “Net income was also impacted by lower income from variable interest entities.”

The company said that some of the decline in income was due to lower benefits from loss expenses.

“Loss and loss expenses for the third quarter of 2014 were a benefit of $28.7 million, as compared to a benefit of $154.3 million for the third quarter of 2013,” the company said. “The third quarter 2014 benefit included lower estimated losses in international, domestic public finance, student loans, and other structured, which were somewhat offset by $51.7 million of interest expense on deferred amounts and slightly higher estimated losses in residential mortgage backed securities.”

The company noted that its estimated losses in RMBS were driven by lower projected losses in second lien RMBS, “which was more than offset by a combination of higher estimated losses in first lien RMBS and a decrease in estimated representation and warranty subrogation recoveries, the latter of which stemmed from the improvement in second lien RMBS projected losses.”

During the company’s earnings call, Ambac’s president and CEO, Diana Adams, said that the company continues to “actively pursue” RMBS representation and warranty recoveries.

“At the end of the third quarter, we had five ongoing lawsuits with major counterparties and were in direct negotiations with others,” Adams said in a transcript of the call provided by Seeking Alpha.

“Our strategy remains consistent. We will aggressively litigate these lawsuits and will settle only when we believe we can achieve a better risk adjusted resolution than through continued litigation.”

Adams also said that the company continues in its efforts to de-risk Ambac Assurance’s portfolio and purchased approximately $52 million of Ambac’s insured RMBS in the third quarter.

"Results in the third quarter were driven by the ongoing disciplined execution of our strategy, Adams said in the company’s earnings statement.

“We are well positioned to pursue active asset-liability management and we are continually assessing opportunities to maximize the value of Ambac Assurance. Additionally, we are focused on Ambac's long-term growth and diversification through potential acquisitions that leverage our key competencies.” 

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