BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Ambac Financial Group Inc., struggling to avoid the crippling loss of its AAA credit rating, took out insurance on $29 billion in securities it guarantees. The world's second-biggest bond insurer agreed to transfer the risk that the securities will default to Assured Guaranty Ltd., according to a statement today. Reinsuring the debt will free up capital backing those bonds, Ambac said. Ambac guarantees $556 billion of securities and the loss of its AAA rating jeopardizes the rankings on that debt as well as threatens the New York-based company's biggest source of revenue. 'Reinsurance is a valuable, capital-efficient and shareholder-friendly tool for managing risk and capital,' Ambac Chief Executive Officer, Robert Genader said in the statement. My Comment: Reinsurance on $29 billion out of $556 billion is unlikely to do anything but waste money. Right now this it is too little, too late, and on the wrong stuff. It certainly is not shareholder-friendly. At best, all it will do is dilute future earnings. A loss of the top rating would wipe out Ambac's main business of guaranteeing debt. If all the companies were to falter, $2.4 trillion of insured securities would be thrown into doubt, costing as much as $200 billion, according to data compiled by Bloomberg. Assured Guaranty has less risk than its competitors from mortgage-related securities, the rating companies said. Fitch affirmed Assured Guaranty's AAA insurance and reinsurance ratings yesterday after the company announced a plan to raise $345 million through share sales and give the proceeds to Assured Guaranty Re Ltd. so it can reinsure more deals. The debt reinsured by Assured includes structured finance, public finance and international securities, Ambac spokesman Peter Poillon said. Assured won't reinsure any CDOs, he said. Poillon declined to comment on the amount of capital freed up by the deal. My Comment: Poillon would not comment on the amount of capital it freed up because the amount was likely negligible. The big problem for Ambac is CDOs and Assured Guaranty Ltd. apparently was not dumb enough to reinsure those. Ambac insures $8.8 billion of securities backed by subprime mortgages and $29.2 billion of collateralized debt obligations that repackage pools of subprime mortgage debt and slice them into new pieces with varying degrees of risk, according to the company's Web site. My Comment: Ambac did nothing to address the core issue: what to do with $29 billion in CDOs and another $8.8 billion in subprime slime. All Ambac accomplished was selling of assets that were likely good while retaining garbage that likely was not. Notice the spike from $30 to $38 as if $500 million from Warburg Pincus was going to accomplish something. It won't. Nor will selling reinsurance by Ambac accomplish anything but shareholder dilution. Both companies remain capital impaired and deep in trouble. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.