Ambac Financial Group Inc. posted another steep loss for the first quarter on Wednesday as turmoil in the bond market pummeled the value of many of the bond insurer's deals.
Ambac's stock plummeted more than 40 percent to $3.46 Wednesday. The shares fell as far as $3.08, an all-time record low.
Ambac lost $1.66 billion, or $11.69 per share, in the first quarter, compared with profit of $213.3 million, or $2.02 per share, in the first quarter last year. The company has lost almost $5.3 billion in the last nine months.
The New York-based insurer recorded $1.73 billion in losses on a book of contracts promising to cover missed payments on complex investments backed by home loans.
With $524 billion in insured debt, Ambac sells insurance policies promising to repay bondholders when bond issuers default.
The contracts Ambac is recording losses on insure sophisticated investments known as collateralized debt obligations, which splice payments from a number of sources.
Because these investments derive some of their payments from mortgage bonds, the insured debt suffered from "dramatically lower" prices in the first quarter, especially in March.
The company for accounting purposes has to assume that when bonds lose value, default is more likely. This makes its own insurance contracts worth less because of the heightened likelihood of a claim.
Ambac set aside $1 billion preparing to pay claims on defaulted mortgage debt.
Demand for certain types of mortgage debt has vanished from the market in the past year as flagging property values and a slowing economy push more homeowners into default. The ensuing fallout in the bond market has yanked down prices and drained liquidity for some bonds Ambac insures.
Most of the losses incurred this quarter stemmed from Ambac's contracts protecting home-equity loans and lines of credit.
"Earlier expectations have turned out to be optimistic, and the environment continued to deteriorate," Chief Executive Michael A. Callen said on a conference call with analysts.
Excluding certain costs and losses Ambac does not consider reflective of business trends, the operating loss was $6.93 per share. On that basis, analysts polled by Thomson Financial expected a loss of $1.51 per share.
Ambac is currently writing little new business and is trying to raise cash to preserve its financial-strength ratings, which clients rely on for reassurance the company is capable of paying its claims.
Fitch Ratings has already slashed Ambac's ratings, and Standard & Poor's and Moody's are both considering a downgrade.
Premiums fell 38 percent to $135.7 million from $220.4 million.
Ambac said it has access to $16 billion in cash to pay potential claims, and its ratios of cash to debt meet the standards S&P has for top-notch ratings. By the end of this quarter, the ratios will meet Moody's Investors Service's standards too, the company said.
