- The Washington Times - Thursday, April 24, 2008

NEW YORK (AP) — Ambac Financial Group Inc. posted another steep loss for the first quarter yesterday as turmoil in the bond market pummeled the value of many of the bond insurer’s deals.

Ambac’s stock plummeted more than 40 percent to $3.46 yesterday. The shares fell as far as $3.08, an all-time low.

Ambac lost $1.66 billion, or $11.69 per share, in the first quarter, compared with profit of $213.3 million, or $2.02 per share, in the first quarter last year. The company has lost almost $5.3 billion in the past nine months.

The New York-based insurer recorded $1.73 billion in losses on a book of contracts promising to cover missed payments on complex investments backed by home loans.

With $524 billion in insured debt, Ambac sells insurance policies promising to repay bondholders when bond issuers default.

The contracts Ambac is recording losses on insure sophisticated investments known as collateralized debt obligations, which splice payments from a number of sources.

Because these investments derive some of their payments from mortgage bonds, the insured debt suffered from “dramatically lower” prices in the first quarter, especially last month.

The company for accounting purposes has to assume that when bonds lose value, default is more likely. This makes its own insurance contracts worth less because of the heightened likelihood of a claim.

Ambac set aside $1 billion preparing to pay claims on defaulted mortgage debt.

Demand for certain types of mortgage debt has vanished from the market in the past year as flagging property values and a slowing economy push more homeowners into default.

The ensuing fallout in the bond market has yanked down prices and drained liquidity for some bonds Ambac insures.

Most of the losses incurred this quarter stemmed from Ambac’s contracts protecting home-equity loans and lines of credit.

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