Cerberus in talks to invest in Ambac-source

NEW YORK Feb 27 (Reuters) - Cerberus Capital Management is among the firms in talks with banks and regulators about potentially investing in Ambac Financial Group Inc ABK.N, a person familiar with the matter said on Wednesday.

Private equity firm Cerberus has a track record of investing in distressed assets in the financial sector. It led a group that bought 51 percent of General Motors Acceptance Corp in December 2006.

A Cerberus spokesman declined to comment.

But some of the private equity firm's investments have stumbled lately. GMAC and its Residential Capital LLC mortgage were cut deeper into junk status on last week, hurt by factors including the mortgage slump.

Also, Scottish Re Group Ltd SCT.N, a reinsurer into which Cerberus injected $300 million last May, said it would try to sell some units and cut costs to preserve capital and liquidity. The reason: its business plan does not work.

After insuring risky repackaged subprime mortgages and other bad debt, Ambac is distressed. The second largest bond insurer, which guarantees more than $524 billion of debt, faces billions of dollars of expected losses. Its shares have fallen more than 85 percent since the start of 2007.

One rating agency has stripped Ambac's main unit of its top ratings, and two others are considering doing so.

Ambac is in talks with banks and others to raise about $3 billion of capital, according to people familiar with the matter, and a deal could be signed soon.

Wilbur Ross has been reported in talks to invest in Ambac. Speaking on the sidelines of the Crain's New York Business Breakfast on Wednesday, Ross declined to say with whom he was in talks, but said he expected to make an announcement in the next few days.

Among the banks in the Ambac rescue group are Barclays Plc (BARC.L), BNP Paribas SA (BNPP.PA), Citigroup Inc (C.N), Allianz's (ALVG.DE) Dresdner, Royal Bank of Scotland Group Plc (RBS.L), Societe Generale (SOGN.PA), UBS AG (UBSN.VX) and Wachovia Corp WB.N. (Editing by Leslie Gevirtz)