Ambac loses $2.43 billion in 3rd quarter

NEW YORK - Bond insurer Ambac Financial Group Inc. said Wednesday its third-quarter loss widened sharply as it increased loss reserves for mortgage-backed securities and took write-downs on credit derivatives.

Ambac lost $2.43 billion, or $8.45 per share, during the quarter, compared with a loss of $360.6 million, or $3.53 per share, during the third quarter last year.

Analysts surveyed by Thomson Reuters, on average, forecast a loss of 50 cents per share for the quarter.

Ambac recorded losses of $2.71 billion on credit derivatives during the quarter, primarily due to increased future loss projections on collateralized debt obligations, or CDOs. So-called CDOs are complex financial instruments that combine various slices of debt, and often include portions of mortgage-backed securities.

The bulk of the derivatives charge was an unrealized loss of $1.87 billion on the CDO portfolio. Ambac increased the projected losses on the portfolio as it increased loss assumptions applied to the underlying collateral of the CDOs — many of which are poorly performing mortgages.

"Housing related data continues to vacillate, having taken a turn for the worse over the past few months after showing positive signs earlier in the year," David Wallis, Ambac's president and chief executive, said in a statement. "Our loss provisioning and on a more forward looking basis, our CDO impairments, are indicative of this."

Aside from the CDO charges, Ambac set aside $607.7 million during the quarter for loss provisions on its portfolio of securities backed by home equity loans and second mortgages. Many bond insurers have faced the expectation of mounting losses on exposure to insuring troubled mortgage-backed securities.

As mortgages have increasingly defaulted since the middle of 2007, expectations for defaults on bonds backed by pools of the troubled loans has grown. Because of those expected losses, bond insurers like Ambac have been forced to set aside increasing amounts of cash to cover potential future losses.

Fellow bond insurer MBIA Inc. was also forced to set aside an increasing amount of cash to cover future losses on securities backed by second mortgages. MBIA recorded pretax losses and expenses totaling $961 million on its mortgage-backed security portfolio.

Ambac's net premiums written during the third quarter fell to $123 million from $251.5 million during the year-ago period as business has slowed amid the ongoing credit crisis.

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