Ambac, MBIA soars as bailout banks named

Shares of Ambac and MBIA rose after CNBC reported the names of eight banks that have banded together with the New York state Insurance Department to rescue the beleaguered bond insurance industry.
FEB 01, 2008
Shares of Ambac Financial Group Inc. and MBIA Inc. rose after CNBC reported the names of eight banks that have banded together with the New York state Insurance Department to rescue the beleaguered bond insurance industry, according to Crain's New York Business. According to the CNBC report, the banks forming the consortium are Citigroup Inc., UBS, Royal Bank of Scotland Group, Wachovia Corp., Barclays, Societe Generale, BNP Paribas and Dresdner Bank. Investors cheered the news, sending shares of Ambac up as much as 18.2% to $13.76 on Friday. Shares of MBIA rose as much as 11.9% to $17.35. Representatives from Citigroup and the state’s Insurance Department declined to comment on the reports. Comments from other banks were not immediately available, but an industry source confirmed the accuracy of the CNBC report. Wachovia spokeswoman Christy Phillips Brown declined comment on whether or not her bank was part of the team but said Wachovia “recognizes the importance of the monoline insurance industry to the financial services sector and would be supportive of efforts to add stability to the system.” Ms. Brown said Wachovia’s exposure to monocline insurers is relatively insignificant. Due to an ongoing credit crunch, Manhattan-based Ambac and Armonk, N.Y.-based MBIA posted huge fourth-quarter losses: Ambac lost $3.26 billion, or $31.81 per share, for the quarter, while MBIA lost $2.3 billion, or $18.61 per share. Fitch lowered its rating on Ambac to “AA” from “AAA” last month after the insurer abandoned a plan to raise $1 billion in capital. Both companies are currently under review by Moody’s Investors Services and Standard & Poor’s and could face additional downgrades. Moody’s says it will likely complete its review of the industry next month. Reports first surfaced last week that state Insurance Superintendent Eric Dinallo was in talks with regulators and U.S. banks to orchestrate a bailout of the beleaguered industry. Mr. Dinallo cautioned, however, that any such rescue would take time. A possible collapse of teetering bond insurers could cost financial firms, including Merrill Lynch & Co. and Citigroup Inc., as much as $75 billion.

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