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Insurer Ambac may need bailing out as soon as tomorrow

A plan to bail out the struggling bond insurer Ambac Financial Group Inc could be announced tomorrow or Tuesday, CNBC reported on Friday, citing bankers working on the deal.

There is a consortium of banks -- including Citigroup Inc, UBS AG, Wachovia Corp and Royal Bank of Scotland Group PLC -- working with the New York State Insurance Department on a possible solution to the Ambac's problems, a person familiar with the discussions said. The person, who asked to remain anonymous, said there "seems to be progress."

Ambac's aim is to maintain the its top-notch credit rating. The insurer essentially needs a credit rating of "AAA" to book new business.

On Tuesday, Goldman Sachs Group Inc analyst James Fotheringham slashed his price target for Ambac to US$7 from US$10, saying it will probably need to raise about US$3.5 billion to maintain its "AAA" rating from Moody's Investors Service and Standard & Poor's.

Bond insurers' ratings are in jeopardy because the value of the securities they insure have plunged in value since mortgage defaults started spiking last year.

"We continue to be engaged in and fully supportive of the bond insurers' ongoing efforts to resolve their current problems," said Andrew Mais, director of public affairs at the New York State Insurance Department.

"As insurance regulators, it is our responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. We are encouraged by any developments that further these goals in this important market," he said.
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