Ambac Financial CEO acknowledges plummeting market value
Ambac Financial Group, Inc. (NYSE: ABK) interim CEO Mike Callen acknowledged that the market value of the bond insurer has “plummeted” after its credit rating was cut Friday. Ambac abandoned a plan to raise $1 billion to defend its “AAA” credit rating after its stock price spiraled down and Moody’s cautioned of a downgrade. Also Friday, Fitch Ratings decreased Ambac’s debt rating to “AA” and warned that its rating might fall even more.
“Ambac and the industry clearly are facing trying times in the marketplace. Both of these [ratings] are external assessments of our business and future,” Callen said during a midday conference call. “We at Ambac believe that they underestimate our company’s strengths.”
The lower rating could prevent Ambac from acquiring new business, especially with municipalities, which typically place great emphasis on “AAA” ratings. Better ratings enable municipalities to pay lower interest rates on issued bonds.
“We believe we can build capital to maintain our ‘AAA’ under Moody’s and S&P, as well as reacquire it under Fitch,” Callen said. “We said that we intended to raise $1 billion or more. Unfortunately, Moody’s unexpected announcement and the consequent stock price decline left us in a position of not knowing how much we would have to raise to maintain a ‘AAA’ [rating] and led us to conclude that raising capital was not an attractive option at that time.”
Callen made the comments during a two-hour conference call that at times was snagged by technical difficulties and inexplicable behavior by some listeners. While David Wallis, a senior managing director, discussed a fourth-quarter credit impairment charge, a female voice interrupted Wallis and said, “That’s awesome.” During the question-and-answer segment of the call, CFO Sean Leonard was interrupted by a loud male voice making a groan while Leonard discussed Ambac’s involvement with mortgage-backed securities. Ambac’s executives nervously laughed off the interruptions. Additionally, the conference was marred by technical problems that caused the call to go mute several times.
Callen said Ambac has been receiving questions about Robert Genader, the company’s former CEO who resigned on Jan. 16 amid subprime chaos and the first losses in Ambac’s history.
“When the stock price started to decline in the middle of last year, the board became concerned. We hired our own financial advisor and legal counsel. Let’s not assume there was no conflict or tension — there was some,” Callen said. “Bob was going around to all the investors, working his heart and soul out.”
Genader dissented from Ambac’s board of directors over the proper response to the market condition and ratings agencies, Callen said. He said Genader felt “very strongly” about a capital note issue, rather than a board-favored equity issue.
“He felt so strongly that he felt he had to step down,” Callen said. “There was no push from this board. He was a treasured asset of this company.”
Before the opening, Ambac swung to a $3.26 billion fourth-quarter loss, or $31.85 per share, from a profit of $202.7 million, or $1.88 per share, a year earlier. The New York City-based company took a $5.21 billion write-down during the quarter. The quarterly results included $1.1 billion, or $7.03 per share, that Ambac set aside for claims that it expects to pay on subprime-backed securities.
“Clearly, the combination of high default rates and low pre-payments tends to be an adverse one,” Wallis said. “There doesn’t appear to be a letup in this very adverse environment.”
Callen said the company’s product has been “blemished” but that Ambac will address the issue over the next weeks.
In afternoon trading, ABK shares have been on a rollercoaster — up 35.32%, or $2.19, at $8.39 after losing ground in pre-market trading. Over the last 52 weeks, shares have ranged wildly from $4.50 to $96.10.
