Ambac Stock and Junk Bonds Rally After Positive Earnings Surprise

By Christine Richard

Nov. 4 (Bloomberg) -- Ambac Financial Group Inc., the bond

insurer whose shares have plunged 99 percent from their 2007

high, reported third-quarter net income of $2.19 billion,

reversing a year-earlier loss, after unrealized mark-to-market

gains in its credit derivatives portfolio.

The profit, equal to $7.58 a share, compares with a net

loss in the year-earlier period of $2.43 billion, or $8.45 a

share, the New York-based company said today in a statement

distributed by Business Wire. The latest quarter includes gains

from reinsurance cancellations. The loss in the 2008 period

reflected $3 billion that the company set aside to pay

anticipated claims.

Ambac, the world’s second-largest bond insurer, was

stripped of its AAA financial guarantee credit ratings last year

as claims on securities backed by mortgages and home equity

loans surged. The company has stopped writing new policies and

this year Chief Executive Officer David Wallis canceled plans to

create a bond insurance unit that would back only municipal

bonds.

"The range of outcomes is so wide that we can’t assign a

valuation to the companies," said Jim Ryan, an insurance

analyst with Morningstar in Chicago. Ryan has a rating of

"extreme uncertainty" on both Ambac and MBIA Inc., the largest

bond insurer.

Ambac rose 6 cents, or 5.7 percent, to $1.11 in New York

Stock Exchange composite trading yesterday. The stock declined

15 percent this year.

(The company scheduled a conference call to discuss second

quarter earnings at 11 a.m. The call is available at

For Related News and Information:

Bond insurer ratings: STNI FINGUARRATINGS <GO>

Ambac earnings news: ABK US <Equity> TCNI ERN <GO>

Top bond news: TOP BON <GO>

Credit-default swaps: GCDS <GO>

--Editors: Charles W. Stevens, Robert Burgess.

To contact the reporter on this story:

Christine Richard in New York at +1-212-617-4929 or Crichard5@bloomberg.net

To contact the editor responsible for this story:

Alan Goldstein at +1-212-617-6186 or agoldstein5@bloomberg.net

(http://ir.ambac.com/phoenix.zhtml?c=80774&p=IROL-irhome.)

We are actively involved in this credit, please call or email Peter Aman for current market prices and/or more information about this situation.

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Peter Aman

PAman@aps-financial.com

800-248-0630