November 29, 2020

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BoomBustBlog As the Most Predictive Media Property In the World? Comparisons to Mainstream, Financial and Business Publications, Pt. 2 - Bankruptcy of Ambac Featured

Ambac Financial Group Inc.

Ambac Financial Group Inc. (Ambac or the Company) was a financial services holding company whose principal subsidiaries, Ambac Assurance Corporation and Ambac Assurance UK Limited, were financial guarantee insurance companies. Ambac Financial Group Inc, headquartered in New York, was founded in 1971.

Realizing the impending crisis in housing and consumer finance in the US, BoomBustBlog (the financial blog primarily authored by Reggie Middleton) pointed out the trouble Ambac Financial Group Inc. had and its potential impact on stock prices in an article (Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap), in 2007. According to the article, the possibility of insolvency for Ambac Financial Group Inc. was rising as it was insuring more than it could cover and the quality of its insured products in the subprime mortgage, and consumer finance was deteriorating. The credit rating of Ambac Financial Group was downgraded by rating agency Fitch in January 2008, two months after the article was published as the company dropped its plan of issuing new equity capital after writing down repackaged consumer debt due to subprime mortgage crisis. The financial position of Ambac Financial Group continued to degrade and it eventually filed for bankruptcy in November 2010.

Media House

First article published on

List of Articles published

No. of Articles published

The time lag from BoomBustBlog

The time difference from Ambac filing for bankruptcy

Comments

BoomBustBlog

November2007

 

 

November2007

 

 

November 2007

1.   Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap

2.   Welcome to the World of Dr. FrankenFinance!

3.   A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton

3

-

Predicted about 3 years before Ambac's filing for bankruptcy

Predicted well before filing for bankruptcy

Bloomberg

January 2008

January 2008

 

November 2010

1.   Ambac's Agony Deepens

2.   Ambac Tumbles on More Subprime Fallout

3.   Ambac Financial Group Files Bankruptcy to Restructure Bond Debt

3

2 months (reporting on possible credit rating downgrade)

2 months

(reporting on possible credit rating downgrade)

About 3 years

(reporting on filing for bankruptcy)

The first report was published before downgrading of credit rating in 2008 by Fitch

The second report was published before downgrading of credit rating in 2008 by Fitch

The report was published after filing for bankruptcy in 2010

Reported before credit rating downgrading and reacted after filing for bankruptcy

The Wall Street Journal

January 2008

 

 

November 2010

 

November 2010

1.   Monoline Insurers Sink On Credit-Rating Reviews

 

 

2.   Ambac Says Chapter 11 a Possibility By Year-End

 

3.   Ambac Files for Chapter 11

3

2 months (reporting on possible credit rating downgrade)

About 3 years

(reporting before possible bankruptcy)

About 3 years

(reporting on bankruptcy)

The first report was published before downgrading of credit rating in 2008.

The second report was published some days before the bankruptcy of Ambac reporting concern of the Company on a possible bankruptcy.

Report on filing for bankruptcy

Reacted before the credit rating downgrade

  Reported before and after the bankruptcy

Financial Times

November 2007

November 2010

1.   Ambac looks to offload risk

2.   Ambac warns over prospect of bankruptcy

2

No lag (reporting on possible credit rating downgrade)

About 3 years

(reporting on possible bankruptcy)

The report was published before downgrading of credit rating in 2008.

The second report was published some days before the bankruptcy of Ambac reporting concern of the Company on the prospect of a bankruptcy

Reported before the credit rating downgrade and also before the bankruptcy filing

Forbes

January 2008

November 2010

1.   You Should Worry About Ambac

 

2.   Ambac Tumbles Into Chapter 11

 

2

2 months

(reporting on possible credit rating downgrade)

About 3 years

(reporting on filing for bankruptcy)

The first report was published before the credit rating downgrading by Fitch in January 2008

The second report was published after the filing of the bankruptcy

Reported before the credit downgrading and after the filing for bankruptcy

Reuters

January 2008

 

June

2010

November 2010

November 2010

1.   Ambac Loses Top Rating in Blow to Its Business

2.   Ambac warns of default as bondholders organize

3.   Ambac says may go bankrupt this year; shares sink

4.   Bond insurer Ambac files for bankruptcy

4

2 months

(reporting on credit rating downgrade)

About 2 years 7 months

(reporting on possible bankruptcy)

About 3 years

(reporting on possible bankruptcy)

About 3 years

(reporting on filing for bankruptcy)

The first report was published after downgrading of credit rating in 2008.

The second report was published about five months before the bankruptcy of Ambac reporting concern of the Company on a possible bankruptcy.

The third report was published some days before the bankruptcy

The fourth report was published after filing for bankruptcy

Reacted after the credit rating downgrade  

Reacted in two articles (June 2010 and November 2010) before the bankruptcy on the concern of Company on a possible bankruptcy

Also reacted after the bankruptcy

The New York Times

November

2010

1.   Ambac Files for Bankruptcy

1

About 3 years

It was published after the Company filed for bankruptcy

Reacted only after filing for bankruptcy

Fortune

-

-

-

-

-

-

Business Insider

-

-

-

-

-

-

               

 

Key Highlights:

BoomBustBlog

Reggie Middleton, through his articles, provided a comprehensive view and some of the earliest warning about a challenging operating environment for Ambac based on its financial status and business profile. His assessment pointed out that, Ambac would be insolvent due to insuring considerably more than the economic value of its equity capital and writing insurance contracts for risky bonds linked to troubled mortgages. Some of the major points highlighted in the article are,

  • Ambac has little capital to cover its insurance claims
  • In the consumer finance portion of Ambac's portfolio; it insured companies in financial distress with some of them reporting large scale write down on mortgage assets
  • In the base case scenario, it was estimated that the Company would report losses to the tune of USD8 billion in its structured finance, subprime RMBS and the consumer finance portfolio and it would need to raise an additional USD2 billion in order to function as an ongoing concern
  • Based on an assumption to spread the losses on the insurance of various vintage periods over the coming years, the Company would have to create a provision of USD6.8 billion as per the base case scenario
  • The economic book value per share in the optimistic scenario was estimated to be USD9 compared to the stock price of USD21.8 while writing the article
  • Out of its total mortgage-backed security (MBS) related insurance, residential mortgage-backed security (RMBS) related insurance represented 16.3%
  • Out of its total subprime portfolio, 36.4% belonged to years of 2006-2007 when credit writing standards were at their all-time lows

The predictive analysis done by BoomBustBlog was detailed and comprehensive. The prediction made by Reggie and the points highlighted by him were proved right, and in November 2010 the Company filed for bankruptcy.

 

Bloomberg

Bloomberg reported in January 2008 on downgrading of the credit rating of Ambac Financial Group by Moody’s. In the next article in January 2008, it reported that Ambac was trying to raise capital as it warned of a fourth-quarter loss in FY09.

In November 2010, it reported that Ambac filed for bankruptcy.

Bloomberg pointed out that Ambac faltered after it started chasing higher profits by expanding beyond municipal bond insurance and insuring riskier debt. That move backfired due to the crash in the housing market, and tightening of credit markets.

Bloomberg also reported that Ambac could not raise the needed capital and was unable to reach an agreement with senior bondholders for restructuring.

Reggie had pointed out in his article that Ambac Financial Group Inc. was insuring much more than they can handle in the case of an outlier event given its relatively lower equity capital - and he did this a full three months in advance. It would need to raise an additional USD2 billion to continue as a going concern.

The Wall Street Journal

In its first article published in January 2008, the Wall Street Journal (WSJ) reported that Moody's Investors Service and Standard & Poor's signaled fresh consideration of AAA rating bonds of Ambac Financial Group Inc.  

In November 2010, WSJ reported that Ambac might file for bankruptcy protection by the end of the year. In the same month, it reported that Ambac filed for Chapter 11 bankruptcy protection after the Internal Revenue Service questioned the accounting that allowed the bond insurer to receive more than USD700 million in tax refunds.

Reuters

Reuters reported in its article published in January 2008 about the downgrading of credit rating of Ambac by Fitch. Reuters pointed out that the credit rating was downgraded as Ambac dropped its plan to issue new equity after writing down repackaged consumer debt hit by the subprime mortgage crisis.

Reuters published an article in June 2010, stating the concern of Ambac about the prospect of a default on its loan obligations and was still considering filing for bankruptcy. In November 2010, Reuters reported that Ambac filed for bankruptcy. It pointed out insuring risky debt as the primary reason for the bankruptcy of Ambac.

Notably, Reggie Middleton, in his article in BoomBustBlog, has provided a detailed description of the subprime portfolio of Ambac. He pointed out that the subprime RMBS portfolio represented about 16% of the total MBS portfolio of Ambac Financial Group.

 

Financial Times

In an article published in November 2007, Financial Times reported that Ambac was working on deals to offload risks from parts of its portfolio to ease pressure on its capital base and avoid a downgrade of its credit rating.

In March 2010, Financial Times reported that the insurance unit of Ambac Financial Group was seized by regulators to halt pay-outs on USD35 billion worth of policies covering defaulted mortgage-backed debts. It was done in part to protect the public finance market guarantees from the fallout of the mortgage business. In November 2010, an article was published in Financial Times on the concern of Ambac over a possible bankruptcy. As per Financial Times, default on the risky mortgage due to housing market collapse led to the trouble for Ambac.

Forbes

In an article published in January 2008, Forbes reported on the prospect of credit rating downgrade of Ambac after the company forecasted significantly higher-than-expected losses from insuring credit derivatives, many of them tied to subprime mortgages.

In November 2010, Forbes reported that Ambac Financial Group filed for Chapter 11 bankruptcy, after failing to reach agreements with lenders on how to repay its debt.

The New York Times

In its article published in November 2010, The New York Times reported that Ambac filed for bankruptcy protection after seeking to negotiate a plan with its biggest creditors. In its Chapter 11 petition, Ambac listed several groups of bondholders — all represented by the Bank of New York Mellon as trustee — as its largest creditors, with a total of USD1.6 billion in claims.

 

 

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Last modified on Wednesday, 18 November 2020 08:17
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