Ambac deal rumor bails out Dow

February 22nd, 2008 | Category: Competitive Strategy

Bloomberg News reports that a bailout of Ambac Financial Group (NYSE: ABK) is going to be announced next week. Ambac rallied on speculation a recapitalization would salvage the second-largest bond guarantor’s AAA credit rating. The Dow is rising — going from being down 120 points earlier in the day to being up 97. Charlie Gasparino, CNBC’s on-air editor, suggests that the deal could be announced next Monday or Tuesday.

Since no details are available, I think the market’s movement reflects panicked short covering before the weekend. whether Gasparino is right about that, it could help limit worries that have sent the market down nearly 13% from its

October 2007 high. As I posted here, the bond insurance market is a critical support system for the securitization industry. whether it can retain its AAA rating, there might be some hope for limiting the downside damage.

We’ll soon know whether that rumor is true.

Peter Cohan is President of Peter S. Cohan & Associates. He plus teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Ambac securities.

Original post by Peter Cohan

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