This was all but inevitable:
Bond insurer Ambac Financial Group said again that it may seek bankruptcy protection after state regulators took control of some of its most troubled assets.
The news Thursday sent the company’s already devalued stock into a tailspin.
The Wisconsin insurance commissioner on Wednesday ordered Ambac’s main operating subsidiary, Ambac Assurance Corp., which is based in that state, to set up a segregated account for policies related to risky structured finance transactions. Those include the credit default swaps and residential mortgage-backed securities held by major Wall Street banks that helped to accelerate the national financial crisis.
At one point in time, ABK had the highest income per employee of any publicly traded firm.
Here’s what I previously had written about them:
Like Ambak (ABK), MBIA ran what was an enviably low risk, high return business. They sold a product that was more or less unnecessary — Muni Bond insurance — to willing buyers that saw a decrease in borrowing costs once they bought into the game. I don’t buy into the notion that muni bond insurance is a scam, but it comes close: Fund buyers got insured paper, Muni borrowers got lower rates (therefore saving on borrowing costs), and ABK/MBIA got well paid for insuring bonds that went bust at one of the lowest rates of all classes of fixed income paper.
As we noted back in January, that high profit, low risk situation — despite its enormous profitability — was obviously intolerable. In came the financial engineers, as the thought process seemed to be “Hey, we should be issuing insurance on riskier paper — think about how much much bigger the premiums are than boring old munis!”
The rest, as they say, is history . . .
MBIA DESERVES to Go Belly Up (August 11th, 2008)
Counter-Party Risk (January 18th, 2008)
Ambac may seek bankruptcy after regulators step in
EILEEN AJ CONNELLY
Reuters, March 25, 2010