Bond Insurers Soar on Report of Possible Bailout

New York's insurance regulator met major banks Wednesday to talk about a plan to support
wobbly bond insurers, sending shares of both Ambac Financial Group and MBIA sharply higher.

Hundred Dollar
Bill Haber
Hundred Dollar

The major banks are under pressure from New York State insurance regulators to provide as much as $15 billion in fresh capital, the Financial Times reported.

Shares of Ambac closed up $5.04, or 63 percent, to $13.01, while MBIA ended up $4.47, or 36 percent, to $17, both on the New York Stock Exchange.

Bond insurers have struggled with rising claims and big write-offs, which have eaten into their capital. Ambac's main insurance unit lost its top triple-A rating from Fitch Ratings on Friday.

The New York State Insurance Department held a meeting with with bond insurance counterparties and policyholders, department spokesman David Neustadt said Wednesday.

The meeting came one day after New York State Insurance Superintendent Eric Dinallo said in a statement that he was holding talks with parties about possible future capital investments in the bond insurance sector.

It also came a day after Ambac reported a quarterly loss of $3.3 billion, but its shares surged after the bond insurer said it hopes to find much-needed capital "reasonably soon."

Ambac needs to raise capital after recording a $5.2 billion pre-tax write-down in the fourth quarter for credit derivatives positions linked to assets including mortgages.

It had planned to issue $1 billion of equity or convertible securities to boost capital, but decided last week that market conditions were not good enough.

The company is still looking at other ways to raise capital and has received "a lot of interest," interim Chief Executive Michael Callen said on a conference call.

While the company gave no assurances on the future, the hopes it expressed were enough to boost a stock that has been hammered over the past year.

In the near term, Ambac still faces major hurdles. Chief Financial Officer Sean Leonard said on the conference call that its new business had already been declining in the fourth quarter and first part of January, and should decline further after the Fitch ratings cut.