Ambac Shares Plunge on Dividend Cut, Capital Plan

By Joseph A. Giannone and Dan Wilchins

NEW YORK (Reuters) - Ambac Financial Inc (ABK.N) said on Wednesday it was recording a $3.5 billion write-down, equivalent to nearly two-thirds of its net worth, and plans to raise $1 billion in new capital as the bond insurer scrambles to maintain its top credit ratings.

The company, hard hit by the continuing turmoil in credit markets, also said it would cut its dividend and that its chief had retired after 20 years at the company, in part because of a disagreement over the capital-raising plan.

Ambac's shares plummeted 27 percent to $15.34 on the New York Stock Exchange, reaching their lowest level intraday since 1996.

The expected losses, new capital needs and dividend cut are the latest blow for bond insurers, which have been struggling as market players have braced for higher losses on bonds the companies have insured.

Investors are particularly concerned about repackaged debt known as collateralized debt obligations. Banks including Citigroup (C.N) and Merrill Lynch & Co Inc MER.N have been marking down their CDO positions much more aggressively than bond insurers.

Bond insurers and banks both have relatively low amounts of capital supporting their assets.

Ambac said it expects next week to report a fourth-quarter net loss of up to $32.83 a share, or about $3.3 billion, after recording a writedown of $5.4 billion before taxes, or $3.5 billion after taxes. As of the end of the third quarter, the after-tax figure amounted to 62 percent of Ambac's shareholder equity, a measure of the company's net worth.

Ambac said it will issue at least $1 billion of stock and equity-linked securities. The balance sheet strengthening plan may also include additional capital from reinsurance or issuance of new debt securities.

Rival bond insurer MBIA Inc (MBI.N) said last month that it had secured up to $1 billion in capital from private equity firm Warburg Pincus, and last week MBIA sold $1 billion of surplus notes. Those notes have already fallen to about 89.5 cents on the dollar, and MBIA's shares fell 16.6 percent on Wednesday.

DIVIDEND CUT

New York-based Ambac will cut its quarterly dividend by two-thirds to 7 cents a share. Given the company's share count as of November 2, that would amount to about $14.2 million saved per quarter.

The dividend cut comes a day after Citi, the largest bank in the United States by assets, said it was cutting its dividend 41 percent.

Ambac named director Michael Callen as chairman and interim chief executive. Callen replaces Robert Genader, who retired after more than 20 years at the company.

The company said it is taking steps to meet or exceed Fitch Ratings' triple-A standards. It already meets triple-A standards for Moody's and Standard & Poor's. Maintaining a top credit rating is crucial for Ambac, which insures bonds issued by companies and government bodies against default.

Ambac, which was advised by Credit Suisse, has been hammered by losses stemming from the accelerating subprime mortgage crisis.