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Ambac Financial Group, Inc. Announces Second Quarter Net Loss of $2,396.6 Million.

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Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) announced a second quarter 2009 net loss of $2,396.6 million, or a net loss of $8.33 per share. This compares to a second quarter 2008 net income of $823.1 million, or income of $2.80 on a fully-diluted per share basis. The second quarter 2009 results reflect higher loss and loss expenses primarily related to the residential mortgage-backed securities (RMBS) insured portfolio and other-than-temporary impairment losses in its investment portfolios related to RMBS and tax-exempt municipal securities that it is prepared to sell. Additionally, during the quarter Ambac increased its deferred tax asset valuation allowance. In 2008, Ambac's second quarter results reflected a positive change in fair value of credit derivatives amounting to $961.6 million, primarily related to its own credit spreads widening; and a reduction of loss reserves amounting to $339.3 million, primarily related to the insured second lien residential mortgage-backed securities portfolio. Quarter Summary Net loss and loss expenses incurred amounted to $1,230.8 million for the quarter, primarily relating to second-lien and Alt-A RMBS transactions.

AAC and the investment agreement business recorded other-than-temporary impairment losses amounting to $675.4 million and $186.7 million, respectively, related to the decision during the second quarter 2009 to sell certain investment portfolio securities.

The deferred tax asset valuation allowance currently represents substantially all of the gross deferred tax asset at June 30, 2009. The increased estimate in the valuation allowance was primarily driven by continued weakening in Ambac Assurance Corporation's (AAC's) insured RMBS transactions and the resultant decreased ability to reliably project future taxable income.

During July 2009, Ambac reduced a significant portion of its exposure under a collateralized debt obligation of asset-backed securities (CDO of ABS) transaction via a settlement, and commuted all of its exposure under another CDO of ABS transaction. The two transactions, with an aggregate of approximately $2.8 billion net notional outstanding at June 30, 2009, were settled with counterparties for a total cash payment of approximately $746 million.

FAS 163 was implemented on January 1, 2009. Due to changes in calculations of certain income statement items such as net premiums earned and loss and loss expenses, 2009 and 2008 amounts are not comparable, as described in detail in our Operating Supplement.

Estimated statutory impairment losses within the credit derivatives portfolio amounted to $1,568.7 million during the quarter,...

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