Ambac Financial Group (ABK) posted a $690.1m net Q110 loss, widened from a $392.2m net loss in the year-ago quarter, as write-downs in mortgage securities and the adoption of certain accounting standards weighed on company results. Ambac’s exposure to residential mortgage-backed securities (RMBS) and write-downs of RMBS securities also drove the quarter’s losses. The bond insurer posted $31.3m of other-than-temporary impairment losses in the quarter, narrowed from $744.7m in the year-ago quarter. Write-downs of Ambac-wrapped RMBS securities within its investment portfolio drove the losses. Credit deterioration in the second-lien segment of Ambac’s insured RMBS portfolio drove $89.2m of total net losses in the quarter, while improvement in certain first-lien RMBS transactions kept losses significantly narrowed from $739.8m in the year-ago quarter. Ambac recorded a $495.1m loss related to the adoption of Accounting Standards Update (ASU) 2009-17 in January. The ASU required the firm to consolidate certain enterprises known as variable interest entities (VIEs) when its insurance policies or written credit derivatives give the company a controlling financial interest in those entities. As a result, Ambac consolidated 83 VIEs, which increased shareholders’ equity by $705m. But then, in March, Ambac’s principal operating subsidiary, Ambac Assurance Corp., established a segregated account to hold insurance policies related to RMBS and other structured finance transactions for orderly runoff and settlement. As a result, Ambac no longer held a controlling interest in the 49 VIEs whose insurance policies were allocated to the segregated account. Those VIEs were de-consolidated as of March 24, at a $495.1m charge to Ambac’s consolidated statement of operations. Write to Diana Golobay.Disclosure: the author holds no relevant investment positions.
Most Popular Articles
The housing market is signaling there will be an economic recession by the 2020 election, according to Benn Steil, director of international economics at the Council on Foreign Relations.
Last week, the 30-year fixed-rate mortgage fell, spurring another uptick in refinance demand, resulting in mortgage applications rising by 0.5%, according to the Mortgage Bankers Association. The organization indicates that on an unadjusted basis, the index crawled forward 1% for the week ending on October 11, 2019. Despite this increase, Joel Kan, MBA’s vice president of economic and industry forecasting, said the ongoing interest rate volatility is impacting a borrowers’ ability to lock in the lowest rate possible.