Crisis over? Not quite: Bond insurers take another hit

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Wall Street has been worried about another shoe dropping in the loss-ridden financial sector. Today it looks like one of the original dropped shoes is back for a replay.

Shares of bond insurance company Ambac Financial Group Inc. have plummeted to new lows after the firm said it lost $1.66 billion, or $11.69 a share, in the first quarter. That far exceeded analysts’ worst estimates.

Although a big part of the loss stemmed from ‘non-cash’ accounting write-downs on insurance contracts tied to mortgage-backed bonds that have fallen in value, that isn’t making investors feel any better. The stock was off 40% to $3.59 at about 10:30 a.m. PDT.

You know it’s a bad situation when Ambac, once again, had to insist to investors today that it wouldn’t file for bankruptcy protection.

This, after the company raised $1.5 billion by issuing new stock last month to shore up its capital.

Shares of rival MBIA Inc. are down $4.03, or 30%, to $9.25 today.

The bond insurers helped deepen the U.S. credit crunch last fall as they began to reel from losses on sub-prime-mortgage-backed bonds they had insured. That led to fears that the companies would be unable to make good on insurance on municipal bonds -- which had been their bread and butter before they jumped on the sub-prime bandwagon.

Posted April 23, 2008