Recent events may say that Ambac (ABK) has bottomed..
1- Ackman:
According to his SEC filing today, Pershing’s Bill Ackman no longer hold a short position in the company. The most vocal critic of the bond insurers, Ackman’s actions show he feels the downside from here is limited. It is also of note that he dramatically also scaled back his short exposure to MBIA (MBI) since December.
2- Whitman:
Value investor Martin Whitman has picked up over 10 million shares of the bond insurer. Whitman, whose Third Avenue Value has trounced the markets since its inception, is famous for his bets in troubled companies.
3- Exposure:
Ambac recently responded to a Moody’s rating inquiry “we have already taken substantial reserves against our CES and HELOC portfolios (48% and 33%, respectively, against below investment grade exposure). Moreover, we have not assumed any recoveries related to our active remediation efforts. Despite very stressful loss estimates of our portfolio, we believe we have already exceeded Moody’s stressed Aaa target as of April 30th, 2008 and we continue to build excess capital.”
It also said “Ambac has no material exposure to subprime borrowers in either asset class. The estimated range of average FICO scores for borrowers within pools we’ve insured in these asset classes is 695 – 745.”
The big news is the Ackman exit. Without his negative commentary (and the specter of his presence) on the insurers, sentiment will begin to turn and the value investors that have bought shares and their outlook will begin to take a dominant role.
It has become clear that the NY Insurance Commissioners Office has decided that these two, MBIA and Ambac will not fail. They have held off ratings downgrades and the public statements from the office are always an attempt to reassure investors. Let’s also not forget that a failure of either of these will not exactly put the Office in the best of light. Without pal Eliot Spitzer to look out for him, Commissioner Dinallo may be in danger of being able to “pursue other opportunities”.
That being said, the downward heat on both companies just subsided big time. With smart money pouring into Ambac, I think it may be time to take a small stake..
Disclosure (“none” means no position):None
