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Wednesday, April 23, 2008

Ambac Gets Crushed, Another Bank Wobbles


Remember those monoline insurers that used to move the market by a couple hundred points in either direction? The ones that everybody seems to have forgotten about? Well, Ambac (ABK) just reported earnings. HINT: Pre-market, ABK is -20%...

Ambac Posts Loss on CDO Writedowns, New Business Drop (Update2): “Ambac Financial Group Inc., having staved off a credit-rating downgrade, posted a wider loss than analysts estimated after taking $3.1 billion in charges for subprime-mortgage securities.

The first-quarter net loss was $1.66 billion, or $11.69 a share, compared with net income of $213.3 million, or $2.04, a year earlier, New York-based Ambac said today in a statement. The company's operating loss of $6.93 a share was larger than the $1.82 estimated by six analysts surveyed by Bloomberg.”

The operating loss of $6.93 a share was larger than the $1.82 estimated by six analysts? Hahaha… Analysts are generally about as useful as a third nipple. (READ: What's Analyst Worth? Not a Penny as Estimates Miss (Update2))

“New business slumped 87 percent as states and municipalities shunned its insurance and the market for mortgage securities dried up. Ambac ratcheted up estimates for claims it will need to pay on home-loan debt by $2 billion.”

ABK is dead. Done. Kaputt. There is NO new business, therefore there is no new cash flow to pay for pending losses. Nuff said.

“Ambac raised $1.5 billion in March after credit rating companies threatened to strip the bond insurer of its top rating following record losses on subprime-mortgage securities. The additional capital staved off downgrades by Moody's Investors Service and Standard & Poor's. Fitch Ratings cut Ambac Assurance Corp. to AA in January. All three companies have negative outlooks on the ratings.”

This first quarter loss of $1.66 billion completely wipes out the $1.5 billion that ABK could BARELY scrape together. ABK had to TRIPLE the number of outstanding common shares to 285 million to raise that money.

“The company this week said it's seeking shareholder approval to increase authorized shares to 650 million from 350 million.”

Lacking both imagination and any real chance in hell, ABK is going for more of the same. Can you say MASSIVE dilution? ABK is worth absolutely nothing. Why anybody would hold a long position in their common is beyond me. A complete and full bailout would probably still push common to ZERO. Especially a government bailout.

HVB Chief Sees `Significant' First-Quarter Writedowns (Update2): “HVB Group, UniCredit SpA's German banking unit, said it expects “significant” writedowns related to the credit crisis in the first quarter.”

Another German banks warns. HVB Group is the second largest private-sector bank in Germany and with Bank Austria Creditanstalt, the undisputed market leader in Austria. With over 61,700 employees, 2,000 branch offices and more than 8.8 million customers HVB is not the kind of bank you want to see get in trouble.

HVB doesn’t report until May 8th. To pre-announce like this definitely means that the writedowns will be massive.

Bondholders Lucky to Get 10 Cents on Dollar in Looming Defaults: “The looming wave of bankruptcies is unlikely to be kind to bondholders. And they have only themselves to blame.

Rather than receiving the historical average recovery of 42 cents on the dollar in a default, owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents, according to New York-based Fitch Ratings. About 22 percent are likely to get 11 cents to 30 cents.”

While painful for the suckers holding this junk debt, consider the world of pain this will cause the uber nerds that fancied themselves financial engineering Gods and wrote heaps upon heaps of completely under priced CDSs (Credit Default Swaps)? Whole teams of math ninjas at the banks and hedge funds wrote records amounts of CDSs off their ridiculously complex and perpetually optimistic models. This was of course done at a time when corporate defaults had been at record lows for the most consecutive years in the history of man.

“Chapter 11 business bankruptcies rose 16 percent in the first quarter.”

It would seem that nobody sat these suckers down and explained to them the meaning of the word CYCLE and how to combine it with the words BUSINESS and ECONOMIC.

cy·cle:
–noun
1. any complete round or series of occurrences that repeats or is repeated.
2. a round of years or a recurring period of time, esp. one in which certain events or phenomena repeat themselves in the same order and at the same intervals.

Maybe they all listened to Larry Kudlow and his “Goldilocks economy” FOREVER crap.

The TED Spread has moved up again. Three month LIBOR remains at 2.92 today.

Monoline Related Posts:
Quiet, Sneaky Little Downgrades: CFC, MBI
Ambac ‘Bailout’: Why Bother?
Ambac Bailout: The Wheels Come Off
Monoline Bailouts: The Great Circle Jerk

Related Posts:
Fragile Banks: More Bailouts, More Capital
The Race To The Bottom Accelerates
The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
Dammit, Why Won’t You Learn?
The TED Spread, LIBOR and EURIBOR = Scary Bad
Mortgage Insurers (Quietly) Downgraded: CDS Spreads Scream Trouble