MBIA, Ambac Financial: Back to the trough?

MBIA Inc. and Ambac Financial Group Inc. could yet again be forced to raise additional capital, according to one analyst, as quarterly losses come in “significantly” higher than prior estimates, according to Crain's New York Business. The two bond insurers will likely need around $3.4 billion each in additional capital, Goldman Sachs analyst James Fotheringham wrote in a note to investors Thursday. He expects Ambac to post a loss of around $18.05 per share this year, compared with a previous estimate of a profit of 95 cents per share. MBIA will lose $21.75 per share, compared with a previous estimate of $1.81 per share, he said. New York state Insurance Superintendent Eric Dinallo, who earlier this year called on the industry to tighten regulations, conceded Thursday that bond insurers may be forced to boost capital reserves. “I think it's possible that they may need to raise additional capital," he said in an interview with Bloomberg Television. On Wednesday, Manhattan-based Ambac reported a larger-than-expected $1.66 billion loss for the first quarter, after taking $3.1 billion in charges related to mortgage-backed securities. “We should take a step back and observe one thing, which is in the wake of the earnings that Ambac came out with, the across-the-board market response was calm,” Mr. Dinallo said. Still, the first-quarter loss renewed concerns that the bond insurer’s “AAA” credit rating could be in jeopardy. Ambac Chief Executive Michael Callen said the company remains “committed” to preserving their rating, but on Wednesday said the company has no immediate plans to raise more capital. Both Ambac and MBIA have posted a series of losses after expanding from guarantees on municipal bonds that rarely default to insuring risky mortgage-backed securities. Ambac saw new business drop 87% last quarter, and the company’s shares lost over 90% of their value in 2007. Mr. Fotheringham reduced his share price target for Ambac to $2 from $7 and his share price on MBIA to $8 from $12. Shares of Ambac rose 2.6% to $3.55 Thursday morning on a better-than-expected quarterly report from fellow insurer Aetna. Shares of MBIA were down 3.4% at $8.50.