A few years ago it was Enron, these days, it's Ambac Financial Group, Inc. (Public, NYSE:ABK) that's pushing for 'Worst Shareholder Nightmare for 2008'. Since their shares have fallen from the $30's down to $6 and now back to the $11 range, it's enough to make investors run for the hills.
How did it happen?
Dealers are credited with boosting homeownership through the process of securitization -- packaging loans into bonds -- but also the excesses that are now deepening the downturn in U.S. housing. Ambac and other insurers grew their businesses during the housing boom by providing a form of insurance for structured securities, and now guarantee more than $2.4 trillion in debt.
Contracts on Ambac rose to 14.5 percent upfront and 5 percent a year, from 13 percent upfront and 5 percent a year yesterday, according to CMA Datavision in New York. That means it cost $1.45 million initially and $500,000 a year to protect $10 million in Ambac bonds from default for five years, down from $3.2 million upfront and $500,000 a year in Jan. 22 trading.
MBIA rose to 12.5 percent upfront and 5 percent a year, from 12 percent upfront and 5 percent a year late yesterday, CMA prices show.
Contracts on MBIA, Ambac and other bond insurers reached record highs at the start of the week as investors rushed to hedge against the risk the companies will collapse.
Investing in Ambac is insane at this point, let's review:
| The Ambac Massacre |
|
|
| No of Outstanding Shares |
Date |
Share Price |
Total Market Cap |
| 101,550,000 |
1/2/2008 |
$26.68 |
$ 2,709,354,000.00 |
| 101,550,000 |
2/4/2008 |
$11.39 |
$ 1,156,654,500.00 |
|
|
|
|
| $1.5 Billion still MIA |
|
$ 1,552,699,500.00 |
|
|
|
|
| Jan 17th was fun: |
|
|
|
| 101,550,000 |
1/17/2008 |
$ 6.20 |
$ 629,610,000.00 |
Got money to burn? Buy some Ambac shares then sell your kidneys when you need more money. Sounds too brutal? Ambac would take the money. CNBC said (via Forbes.com) eight banks working with Ambac are Barclays Plc (BCS), BNP Paribas (BNPQY.PK) SA, Citigroup Inc (C), Allianz (AZ)'s Dresdner Bank (DRSDY.PK), Royal Bank of Scotland Group (RBSQY.PK ) Plc, Societe Generale, UBS (UBS) AG and Wachovia Corp. (WB). Everyone is in bed with everyone, it's like a bad episode of Dynasty.
The banks retained Greenhill & Co, a boutique investment bank to shore up Ambac Financial Group, as an adviser, CNBC said, citing an unnamed source. Greenhill did not immediately respond to a request for comment.
The banking industry itself has suffered more than $100 billion of write-downs in the last year related to mortgages and other complex debt.
Representatives of Citigroup and UBS declined to comment. Turns out Kristin Shepard shot J.R., Ambac just put a bullet in the head of the American economy, who knew?
Disclaimer: The Author does not hold any positions or shares in the securities mentioned in this publication.
