Ambac CEO Claims "Worst May Be Behind Us."

In an attempt to calm investors' nerves after posting $1.6 billion in losses on $3 billion in write-downs, Ambac CEO Michael Callan jumped on the bandwagon with all of the other financial company CEOs by implying that the credit crisis was past its nadir. "The worst may be behind us," Callan stated during the company's conference call. He further clarified his point by saying "Worst is a big black bear that is chasing us so everybody RUN FOR YOUR LIVES!" This last quote is actually not true, but that should not take away from the comical nature of the CEO's actual comment. Ambac has a $400 million credit line that is currently in violation of its net worth covenants. Furthermore, the company is seeking shareholder approval to increase its shares by 350 million in order to raise cash to shore up its balance sheet. However, given that the stock is now trading at $3.50, the capital infusion may not be enough. According to the Bloomberg article, the CDS on Ambac has widened by 90 basis points to around 793 but my inside sources claim it is actually trading at 1018 right now, meaning the bond market has its doubts about Ambac's ability to remain in business.

In a related article, Ambac's lawyers are investigating the contracts on 17 transactions. The company is attempting to figure out how losses on underlying collateral with Bear Stearns that were originally projected at 10% morphed into 81.8% default rates. Sort of makes me wonder how bad Ambac's projections are on the rest of its deals. The worst is behind us? That had to have been a joke. But shareholders aren't laughing.