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Friday, January 25, 2008

More Fuel For The Bounce: Microsoft, Ambac

Ambac Rises on Speculation of Takeover by Wilbur Ross (Update2): “Ambac Financial Group Inc., the bond insurer whose shares plunged 87 percent in a year, rose in Frankfurt trading on speculation Wilbur Ross will buy the company.

Ross, who became a billionaire by turning around distressed steel and textile businesses, is in talks to buy New York-based Ambac, the Evening Standard reported, citing people it didn't name. A deal may come within the next two weeks, the newspaper reported on its Web site.

Ross is ``looking at'' bond insurers, which have tumbled after posting record losses on subprime mortgage securities, he said in a Bloomberg Television interview this week. Ambac's stock market value has slumped more than $8 billion in the past year and Fitch Ratings last week stripped the insurer of the AAA credit rating it depends on to guarantee $556 billion of debt.”

More fuel for the bounce. Ambac (ABK) is up 10% pre-market. The broader equity futures like it as well and were already bid on the Microsoft (MSFT) earnings beat.

The monocline insurers need to be recapitalized. Anything less will just delay an inevitable disaster.

Ross may instead start his own insurer. This is not nearly the same thing.

“Ross may start a new bond insurer, the Financial Times reported on its Web site today. Fort Worth, Texas-based TPG Inc., the U.S. buyout fund formerly known as Texas Pacific Group, also may start a guarantor, following billionaire investor Warren Buffett, who set up a company last month.”

Starting an insurer would doom these ones to failure. For Ross, the smart thing would be to start from scratch and buy the best insurance off the troubled monolines. From a more macro perspective, that would leave Ambac and MBIA with the worst of the toxic sludge and guarantee their implosion. But such is life and such is capitalism.

U.S. Stock Futures Climb; Microsoft, Amgen, Ambac, Barrick Gain: “U.S. stock-index futures rose after Microsoft Corp. increased its annual forecasts and Caterpillar Inc. reported fourth-quarter earnings that beat analysts' estimates.”

A list of my recent posts on the ‘monolines’ including MBIA and Ambac:
MBIA, Ambac: Big Bailout Rumours
Ambac -60%, MBIA -30%
MBIA, Ambac: Update
Ambac, Monoline Insurer’s: The End Game


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