Ambac Financial Group’s (ABK) bond-insurance unit may be placed into receivership, as unit’s statutory capital as of Sept. 30 “could very well be in a deficit,” Andrew Wessel, a JPMorgan (JPM) analyst wrote in a report today, according to Bloomberg.
Ambac, the second-largest bond insurer, became the first to lose its AAA bond insurance rating last year after surging loss projections on securities backed by soured home loans prompted significant uncertainties with respect to the company’s future business model and its strategic direction.
According to Wessel, insurance regulators in Wisconsin, which oversee Ambac, will likely take “some level of supervisory action to protect policyholders in the near term”. He believes “Ambac might be placed into receivership near term.”
Wessel reiterated his “underweight” rating on the stock and said that a receivership would leave no value for company’s shareholders, as the minimum surplus it’s required to maintain dwindles. Bond insurers are required to maintain minimum surpluses or risk being taken over by regulators.
As of June 30, Ambac’s insurance unit had statutory capital surplus of $500 million which may have been completely eroded as of the end of September, Wessel wrote.
Ambac fell 23 cents, or 15.37%, to $1.27 at 12:18 ET in NYSE trading. The stock reached a high of $96.08 on May of 2007.