Filed under: Deals, Bad news, Industry
Massive mini-bond insurer Ambac (NYSE: ABK) is considering breaking itself into two pieces. One, which would handle its portfolio of municipal bonds could keep its high credit rating. The other piece would keep its structured financial investment in securities including subprime instruments. The second part of the company may be almost insolvent.
According to The Wall Street Journal, “Bond insurers in current weeks have become ground zero in the global credit crisis because the companies contractually have concurred to stand behind billions of dollars in securities underpinned by U.S. subprime mortgage loans.”
While it is clear why this is good for cities and states whose bonds are insured by the company because that keeps their high credit ratings, it is less clear why it benefits Ambac’s common stockholders. If the operation is broken into two parts, who owns the valuable piece and who owns the worthless piece? In the end, stockholders who have already seen 80% of the market value in Ambac disappear as its shares have fallen, might get very tiny.
Douglas A. McIntyre is an editor at 247wallst.com.
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