Seeking Alpha

Ambac's complexity and uncertainty creating opportunity

  • Investors don't like uncertainty, and sell-side research on Ambac (AMBC +0.2%) is littered with phrases like "filled with uncertainty," or "wait until there is further clarity."
  • Therein lies the opportunity, says one trader, as this conventional wisdom has created an asymmetric risk/reward scenario of a "palatable" downside, and maybe a home run on the upside. "The complexity of the Ambac situation is clearly discouraging investors from the name and has, in our view, led to a substantial mis-valuation of the post-reorg equity ... The lack of clarity coming from Ambac’s management team is further depressing investor sentiment."
  • Ambac, he/she says, has substantially over-reserved for losses on insured RMBS, while going low on how much it might collect in litigation claims. The result is a reported book substantially below fair value. "With management’s compensation package on the verge of being finalized, we anticipate that improved transparency and positive commentary will help close the gap between market and intrinsic value."
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Comments (4)
  • DeepValueLover
    , contributor
    Comments (10013) | Send Message
     
    One of two 2014 "Hidden Gems".

     

    Long (AMBC)
    8 Jan 2014, 04:22 PM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    Has anyone looked at their balance sheet? Sure it is impossible to know how things will ultimately settle out with the litigation and exposures on the MUNI side but there is a lotta goodwill on that balance sheet.

     

    Not to mention the fact that the judge in the bankruptcy court disagreed with the analyst.
    8 Jan 2014, 05:52 PM Reply Like
  • skibimamex
    , contributor
    Comments (467) | Send Message
     
    The RMBS exposure and putback claims are part of "walled off" structured products portfolio in Segregated Account per Wisconsin insurance proceeding, although new Ambac has junior surplus note claim at the Segregated account. AMBC is mainly a ride on the recovery of the muni finance business (especially as interest rates go higher and more muni defaults, so there is value in muni bond insurance) and the monetization of signficant tax attributes at AMBC.
    9 Jan 2014, 04:34 PM Reply Like
  • An Odd Hamster
    , contributor
    Comments (19) | Send Message
     
    Stock is trading where adjusted book is today in my base case. Most of the upside comes from HELOC & student loan portfolio value-creep and potential upside from litigation against BAC & JPM above what their current subrogation recovery suggests. Great buy @ 15 during Puerto Rico scare and credit funds capitulation, still see potential upside to $40+, but time frame uncertain and risk/reward a bit too binary for my taste.
    3 Feb 2014, 03:32 PM Reply Like
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