Bond Insurers Ambac and MBIA Post Wide Losses

Bond insurers MBIA and Ambac Financial Group reported large third-quarter losses on Wednesday, hurt by further writedowns and limited new business, sending both companies' shares into a tailspin.

The companies have been hit hard by the credit crunch and have lost their AAA ratings after posting billions of dollars of losses from exposure to mortgages and complex debt instruments.

They have been seeking a way to tap into the government's $700 billion bailout plan for the financial sector as the downgrades and shaky global credit markets have limited their chances for writing new business.

"It's obviously a key focus for us," Ambac Chief Executive Officer David Wallis said on a call with analysts. The company has sent a submission to the Treasury outlining the reasons why it is eligible for government funds, he said.

On the call, Chief Financial Officer Sean Leonard said the Treasury's plan to buy distressed assets could also help improve the valuations of Ambac's complex mortgage holdings.

It is not yet clear if MBIA or Ambac will have access to government funds. Wallis said Ambac has not had any formal response from the Treasury.

Ambac, in particular, the smaller of the two companies, has struggled to continue writing insurance as its credit rating has been downgraded.

It posted a third-quarter operating loss of $7.81 per share, much wider than analysts' average loss forecast of 90 cents, according to Reuters Estimates.

Ambac had $2.7 billion of unrealized losses on credit derivatives contracts in the quarter.

It said a further rating downgrade warning in September had led it to postpone plans to capitalize a new company dedicated to insuring municipal bonds. It had hoped this business, an area that was its bread-and-butter before it strayed into covering more exotic debt, would help it revive its fortunes.

On the call, Wallis said the company is still working with ratings agencies on its proposal for the subsidiary, known as Connie Lee.

Ambac shares tumbled 25.9 percent to $2.52, while MBIA shares fell 20 percent to $8.36.

MBIA said it increased reserves in the third quarter by $961 million related to certain residential mortgage guarantees, reflecting an increase in delinquencies and a higher level of assumed future losses.

The company also said it had launched legal action against several loan servicers on past transactions that did not meet eligibility criteria for MBIA-insured transactions.

Ambac said it is also filing a complaint against a former Bear Stearns subsidiary, EMC, over breeches in pools of loans it holds.

MBIA's third-quarter net loss widened to $806.5 million, or $3.48 a share, from $36.6 million, or 30 cents a share, a year earlier.

Ambac's net loss widened to $2.4 billion, or $8.45 a share, from $360.6 million, or $3.53 a share, a year earlier.

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