Ambac Shares Plunge on Dividend Cut, Capital Plan

By Joseph A. Giannone and Dan Wilchins

NEW YORK (Reuters) - Ambac Financial Inc (ABK.N: Quote, Profile, Research, Stock Buzz) 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: Quote, Profile, Research, Stock Buzz) and Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) 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.