Ambac Financial Group, Inc. (ABK)

Ok so I am down over 100 on this one, but I dont care cause in the end I will be +100. Big deal they paid down some CDOs for a large amount... They have a lot more sketchy paper, and they are going to not be able to attract new business.

Ambac Financial Group (ABK) is another financial underwriter of loans providing guarantees and other financial services to the public and private sector around the world. They have been hammered by the subprime crisis and credit crunch and banking liquidity issues to a ridiculous 52 wk low from a 52 wk high of $75. The stock has eked up to $2.33 a share. A 1000 share buy at $2,333 has a strong upside potential over the course of the next three years as they will benefit indirectly from the recent legislation for subprime loans and Fannie Mae and Freddie Mac. I believe 300% return per year is very possible and Im willing to take the risk of losing the whole $2,000 investment on this stock in the current conditions as a contrarian.

Stock is held down by rating agencies downgrades. ABK is very actively traded, and it gets shorted everytime it moves higher. ABK insures $20+ billion in toxic CDOs. Depends who you ask. There is a current "threat" by S&P to re-price the CDOs insured by ABK, in which case ABK stated once that they would not be able to meet reserve requirements. ABK counter-threatened the rating boys, and a stalemate has been reached now. S&P now thinks that ABKs proposal to be included in Paulson's rescue package "has merit". I think that the rumors/fears that the muni insurance business is dead are overblown, like every other rumor these days. The Connie Lee subsidiary launch is in limbo, because the $1B capital is tied up as a counter measure to the S&P downgrade threats. There may be more behind this, like S&P not being willing to issue AAA rating to Connie Lee. Unlikely, but I don't have enough info on that scenario.

Since I do not believe in Buy&Hold (dead practice of the past), I am only trading the stock. Resistance is at $6, or at $8 if you have the guts. I am buying the stock below $2, and I am consistently making 100%-200% in every trade cycle. I recommend 4:1 (400%) cash reserves to limit risk for this volatile trade and a stomach made of steel. Otherwise it is easy money.

this is certainly NOT a 1-star stock. too many folks have been listening to bill ackman. ambac & mbia are NOT insolvent, folks.

the market does not understand Ambac's business. The company is trading at about 0.7x adjusted book (which takes account of premiums it will receive in the future based on policies already written).

Ambac's exposer to sub prime is only at the very high end of CDO's. Even when their web site says they are guaranteeing down to a single A level actually about 95% of their exposure is AAA (because they do not take mezzanine positions).

Losses from this portfolio will be driven by both severity and frequency of homeowner default. However Ambac uses the three worst housing downturns in US history (Texas oil crisis, New England early 90s, and great depressions) to set its base case analysis. In general it then requires no losses on a sensitivity 2.5-3.0x greater than this loss.

Additionally, you can see from presentations on their web site that their, and the other monolines, % of the US not agency mortgage market has crashed from about 60% to less than 10% over the last 3 years. This is because the rating agencies have weakened their standards during this period but the monolines have not.

Thus, not only are losses going to be far less than people think (I would be not be surprised if Q3 reserving is nil), but new business prospects are better than at any time in the last three years.

It will take some time for the market to figure Ambac out as it is a complex business. However, in the end fundamentals will prevail.

With the payoff of 1.4 bln debt with 850 mil, ABK has unloaded risky instruments and can now focus on other profitable sectors

ABK is a victim of Moodys risk ratings on all these toxic exotic derivative securities which it decided to back. its on its way back to the top yes not to the 70+ levels a year ago but to the high 20's.

Expect another pullback around October until then reap the profits

All financial are down due to a weak US dollar and high oil prices. The recent decline of oil is giving strength to the dollar and lifting stocks off their current lows. It may take some time but this stock will recover most of its value in 18 months.

ABK is moving way up on the recent news. Removed from the negative credit watch list!!!!! At $6.00 dollars a share its a steal. 52 week high ($ 73.20) Insider trading and funds buying now.

Company has taken positive steps to start up a dormant subsidiary to write new policies upon receiving the AAA rating.

A buy back was annonced for some of the shares that were offered in early spring of 2008.

Insider buys continue and a newly appointed officer recently purchased open market call optios for $5, $7.5 and $10.

The insurance comisioner in NY, where they are HQ'd, looked upon the buy back favorably.

Fed. announced aid to Freddie and Fannie indirectly lends support to this company.

ABK will be saved by lower interest rates. The faster the Fed lower ratest the better. Most ARMs reset off of short term 1 month libor + something.. i.e. 1.8 to 3%. If libor drops to 3% (Which it probably will) the resets on those ARMS will result in fewer defaults. In addition, the holders of those loans will be more willing to renegotiate with the borrowers at lower interest rate resets simply because they will be giving up less profit. And, finally, when libor is at 3%, any payments which ABK must pay will be at a lower rate. There is a reason that the current large shareholders are unwilling to sell ABK stock at $6/share. It is worth much more then that. I am also quite certain that ABK is scrambling to raise $1B somehow so that they can regain their AAA rating.

I bought the stock first at 25 then more as it went down. My average position is a little above 4.

My rationale is that most of the losses are valuation losses ant actual credit losses. I also believe the hype about the housing market is completely overblown.

The only disaster in the stock was the very dilutive equity offering at $5 share price.

I believe that the company's share price will reach about $25 within 3 years based on a conservative multiple ignoring mark to market gains in the future.

I just sold this stock after the previous run up a couple days ago, thinking it was going to go down. Man Have I been kicking myself now! I I think this stock has great potential, financials may be volatile, but they are currently at bargain basement prices! Good time to get in!

This is a bond insurer that has a terrible subprime portfolio. They just fired their CEO and slashed their dividend. I don't have hopes for a bright future with this stock.

Has gotten rid of a large chunk of bad baggage. ABK still has a couple of small bumps to overcome, but will do so before the end of the year. Considering the Fed Bail-out I can see no reason why this will not go over $10.

As the housing sub prime shakes out the worst should be over as goverment and industry cover losses to avoid regulations.

no where else to go but up

ABK and MBI are being carried by the Fed right now. As soon as inflation gets too big to ignore, short term interest rates will rise and defaults will rise with them as rates reset. The precurser to this is already occurring - auctions for auction-rate securities are being postponed right and left. What's more, Fitch recently announced that pretty much all muni issuers are getting a one or two step bump in their ratings (i.e. going forward, many more issuers will have AA or AAA ratings without the help of insurance). Which just illustrates the obvious: ABK and MBI, ultimately, offer a worthless product. It's window dressing. No future. Get out.

Aside from the above, there is a ton of paper out there insured by ABK that becomes callable if ABK's ratings drop. There has got to be a lot of political pressure on the ratings agencies right now to keep these insurers afloat. But what happens if defaults rise and they have to cover the losses with their undercapitalized balance sheet?

If ABK can get it's subsidiary Connie Lee a AAA credit rating to write new business we should see a parabolic move. I think we can see a triple in the short term. Strucutred Credit is a four letter word these days. Long Term - As we regain stability in the credit markets ABK will be regain its footing. Risk/Reward i think this can be used as an entry point.

Disclosure: alphabound owns shares of ABK