Wednesday, April 23, 2008

AMBAC: Lawyers Scrutinizing Certain Transactions

by Calculated Risk on 4/23/2008 01:55:00 PM

On the AMBAC conference call this morning, David Wallis, Ambac's chief risk officer noted that their 'losses are heavily concentrated in a small number of deals which they characterized as “striking” and essentially suspicious' (reader Brian's description). The also made some comments on their Alt-A deals - AMBAC has half a dozen deals now projecting cumulative losses of 20-25% vs initial expectations of approximately 6%.

According to Brian, AMBAC hinted that they might pursue legal action against Bear Stearns and First Franklin.

Here is a story from Dow Jones on the conference call: Ambac: Lawyers Scrutinizing Contracts On 17 Transactions

Bond insurer Ambac Financial Group Inc. (ABK) has hired legal and forensic experts to examine 17 of its financial guarantee transactions covering residential mortgage-backed securities as performance deteriorates.
...
[David Wallis, Ambac's chief risk officer] suggested that one prime candidate for legal scrutiny is a deal with Bear Stearns Co. (BSC) it closed in April 2007. ...

Ambac originally projected that losses on the underlying collateral of the Bear Stearns transaction would be between 10% and 12%, but now expects losses at 81.8% of underlying collateral, a transaction that has seen an unexpectedly "rapid escalation of losses," and represents an outsized percentage of the insurer's expected credit impairment, Wallis said.