Ambac Financial Group, the troubled US bond insurer, is in discussions to effectively split itself up in a move aimed at ensuring that municipal bonds backed by Ambac retain high credit ratings, reports the Wall Street Journal, citing a person familiar with the situation. But a deal could fall apart because of the complexities in such a move, the Journal added. A halving of Ambac would create one unit that insures municipal debt and one that would cover rapidly diminishing securities tied to the mortgages – a structure that effectively creates a so-called “good bank” and “bad bank.” Meanwhile, the FT reported at the weekend that New York’s insurance regulator were preparing to meet sovereign wealth funds, Warren Buffett and other investors in an urgent effort to stabilise the credit ratings on $220bn of municipal bonds guaranteed by FGIC, the troubled insurer. Eliot Spitzer, governor of New York, who oversees the state’s insurance regulator, suggested that Ambac and MBIA should also consider breaking up if they do not stave off imminent downgrades.

This entry was posted by Gwen Robinson on Monday, February 18th, 2008 at 5:48 and is filed under Capital markets, M&A. Tagged with Ambac, FGIC, MBIA. Edit this entry.