MBIA, Ambac Understate Losses: Short Seller

William Ackman, a hedge fund manager and short-seller of MBIA, is submitting data to the Securities and Exchange Commission and insurance regulators in New York State alleging that bond insurers MBIA and Ambac Financial Group are understating their losses.

In his report, Ackman, of Pershing Square Capital, will contend that both bond insurers have said their mark-to-market losses are less than $1.5 billion, but according to his analysis, the losses for each firm will be around $12 billion.

Ackman has come up with this number through an analysis of the vast majority of the CDOs that have been insured by the company. He will claim that his analysis is conservative, meaning that if there is a question about a particular CDO, he doesn’t assume a worst case scenario.

CNBC has confirmed that Ackman has recently met with investor Wilbur Ross to discuss Ross’ examination of Ambac . Ross is interested in buying one of the troubled insurers rather than starting one of his own.

Sources say Ross is hesitant to put more than $1 billion into Ambac, so if Ackman is right, it might end Ross' interest in the bond insurer.

Wilbur Ross has declined to comment.

Ackman is a short seller and has a short position on MBIA . He would like to drive the bond insurer stocks down to zero, where he thinks they belong.

Wall Street bond rating agencies were already poised to downgrade Ambac and MBIA, even though New York state insurance regulators wanted to get a postponement until the state could develop a bailout package.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.

However, if MBIA and Ambac’s losses are as large as Ackman suggests, the rating agencies will have no choice but to downgrade them. That could then scare potential investors away from a private market bailout of the bond insurers, as well as make the New York State bailout plan much more difficult.

Ambac has already received a downgrade from rating agency Fitch but has so far been spared by Standard & Poor’s and Moody’s. MBIA hasn't yet been downgraded.