Ambac and MBIA record heavy Q3 losses

Battered by mortgage-related positions and credit losses, bond-insurance companies Ambac and MBIA both took a hit in the third quarter.

Ambac lost $2.4 billion net during the quarter, as its move to increase loss reserves for charges related to investments in residential mortgage-backed securities (RMBS) and writedowns on credit derivatives led the company solidly into the red.

The company took a $2.71 billion charge on credit derivatives during the period, as loss projections on collateralized debt obligations (CDOs) rose. Net unrealized losses on Ambac’s CDOs totaled $1.87 billion, compared to losses of $743.4 million in the same time period last year. The monoline boosted its estimate of credit impairment by $2.5 billion, as it has increased its future loss assumptions on its CDO obligations related to Alt-A and subprime RMBS collateral.

Meanwhile, MBIA reported a loss of $806.5 million Q3, compared with a loss of $36.6 million in the same period last year, as it boosted its loan loss reserves to cover charges from its mortgage exposures and $155.7 of losses attributable to rebalancing impairments in its asset liability management (ALM) business.

MBIA began to juggle ALM investments in the second quarter to meet worst-case collateral posting and termination payment requirements in case the company experienced a ratings downgrade.

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MBIA and Ambac in further ratings review