The Wall Street Journal-20080117-Credit Crunch- Ambac- MBIA Shunned by Investors As More Subprime Losses Are Forecast
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Credit Crunch: Ambac, MBIA Shunned by Investors As More Subprime Losses Are Forecast
For bond insurers, bad news always seems to trump the good.
Investors gave a thumbs down to Ambac Financial Corp.'s $1 billion capital-raising plan after it warned of a big fourth-quarter loss. Then, in a change of heart, Moody's Investor Service last night said it was placing Ambac on watch for possible downgrade. Meanwhile, rival MBIA Inc. failed to win back much investor confidence even after Fitch Ratings affirmed its triple-A credit rating and restored its outlook to stable on the heels of its own $1 billion debt issue.
All that was overshadowed by Standard & Poor's announcement that projected losses from subprime mortgages made in 2006 would rise to 19% of policies written from 14%. Such mortgage assets underlie many of the bonds guaranteed by the insurers.
Investors feared the new loss rate could result in higher capital requirements for Ambac and MBIA.
"The upshot of this is that capital needed to stay triple-A at S&P will likely rise substantially from the levels laid out less than one month ago," David Havens, an analyst at UBS Securities, wrote in a research note.
In an unexpected twist, Ambac also announced the resignation of Robert Genader, its chief executive and chairman, effective today.
"Mr. Genader stated that his decision to retire was prompted, in part, by his disagreement" with the board's capital-raising plan, Ambac said. Mr. Genader, who didn't respond to requests for comment, will be succeeded on an interim basis by board member Michael Callen.
Ambac shares fell 39%, or $8.17, to $12.97 in 4 p.m. composite trading on the New York Stock Exchange. Shares of MBIA sank 17%, or $2.65, to $13.40, while the bonds the company issued to shore up its capital have fallen about 10 cents on the dollar in the past two days.
Ambac expects to post a quarterly net loss per share of as much as $32.83.
