AMBAC Financial (AMBC)

Lisa Kampf Head, Investor Relations
Claude LeBlanc Chief Executive Officer
David Trick Chief Financial Officer
Giuliano Bologna BTIG
Call transcript
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Greetings and welcome to the Ambac Financial Group, Inc's Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Lisa Kampf, Head of Investor Relations; Claude LeBlanc, Chief Executive Officer; and David Trick, Chief Financial Officer.

the to turn now will call Lisa. over I

Lisa Kampf

thank for Ambac joining you. Group’s Good conference all and morning results. financial discuss Thank today’s you call quarter XXXX second Financial to

most possibly of are events that include like result would may any from statements, SEC Financial could the factors of or current obligation materially uncertainty of subject to guarantees any obligation and you and and under may circumstances. a performance Risk any based described in We Management’s statements events otherwise. today’s and Analysis Operations this quarterly changes are management’s our under annual expressly statement cause of disclaims on statements. not events. Discussion Factors. in remind of & forward-looking contain and Factors presentation whether update as forward-looking recent report new to Ambac under are differ Actual or to performance not forward-looking expectations future Results and which information, such Any future forward-looking that Condition filed is

ambac.com. available of our Presentations non-GAAP in comments the section earnings reconciliations GAAP website, supports is measures. IR release The which figures to & note Please our our have today. measures presentations been presentation contains posted which most Today’s are the at financial included website that Events such press comparable on to of our

LeBlanc. now would call like over I to Claude turn Mr. to the

Claude LeBlanc

joining to and Lisa you, everyone welcome call. Thank today’s

XX% decline list for achieved net and approximately in progress billion the the representing our de-risking portfolio adversely with active billion year-to-date further represents $X.X and XXXX. further insured our the portfolio insured the billion of we overall During make par $X.X strategic our a key of second quarter, by classified including following credits. priorities, $XX.X to XX.X% watch reduction insured on in to This continued quarter decline our significant the X.X% reducing

for restructuring XX. quarter UK credit the one Ballantyne by X.X% in our The the the quarter component required the list credit several was representing June classified and The second of credits the and the outstanding restructuring, during More transactions, declined overall exposures of watch position reduced $XXX Ballantyne of importantly, capital XXXX portfolio par including a closed of Ambac adversely reduction UK’s million near by de-risking exposure Ambac largest adversely decline. large to key net and commutation successful of dramatically by which on execution levels. regulatory classified driven improved

which impact distribute value that and scale our adjusted our we or certain improve explore that from options of sculp tail the value potential actively risks, value include to reduce options insured book continue various may commutations, to large negatively portfolio could, to believe We de-risk capital overall remediations as and/or scenarios book timing in and quality the our and book transactions well will subsidiaries. insurance accelerate as reinsurance our

Adjusted earnings in reviews the adjusted The share quarter XXXX, driven Ambac an million decrease March to to diluted share the related results XX, a during value key per book for by non-GAAP results were of a For per $X.XX quarter XX, favorable insurance value when GAAP asset $XX.XX million he intangible quarter. $XX share $X.XX $XX.XX of in the the June the will Ballantyne. us $XXX David second primarily with an XXXX. share to book resulting more of per the at financial for negative in and of quarter $X.XX reported or and net acceleration $X.XX XXXX. between details results the provide difference loss of ended per diluted from increased XXXX XX, the or June was

Yesterday, is the a our connection settlement Ambac In on in $XXX a allocated amount the the the to in of accrued our to in assurance. million results. Citigroup proceeds of allocation of York court decision not with Ambac receive to finally federal and Ambac second expectations, funds settlement. range New another allocating to quarter we for development, major distribution the were approved but pleased reflected previously plan The within is approximately was not SEC

However, we recorded proceeds received the expect quarter. third will in and be that the

fiscal the Turning governance Puerto elevated million. year $XXX consumer year-over-year now due and activity levels Treasury momentum exceeded well billion to Rico aid. by the as hurricane improvement was commonwealth related $X underscore strength that for which to proven fiscal revenue properly general improvement the Board private Rico, federal or This in fund by to revenues and risk. These payments servicing PROMESA political the outperformance and relatively economic the XX% the the financial growing the board. unfortunately commonwealth in the oversight Oversight over insurance certified and for year and plan by of been This recovery continues Puerto week fiscal revenue business economic the as disaster other XXXX aided commonwealth and significant island XXXX metrics by revenue reflected the latest approximately show and increased and significant announce of despite increased has not poor projections debt capacity, tax

and bankruptcy and expectations effectively of stated effects and times, debt the a performance actual the facilitate plan in costly the revise needs realistic order to and of have acceptable we on deals term people Puerto to restructuring act and the As conceptual to oversight numerous increasingly long a reflect to board Rico. fiscal destructive responsibly

government’s a not and economy Rico needs surprising. has renewed and governance Governor alike. The short recent a reform increased and hopes long-term Ambac exposed policy on legislative addressing cooperation is focus policy events government to current any enhance addition, capital framework, for the turmoil public by reforms political and the the Board oversight the Oversight federal that there the that structural and basic on impact development and board Puerto capacity. credibility government issues corruption Puerto on strengthen challenges markets is reestablishing make the the and a will local implementation meaningfully lived improve with In institutional between is economic policy in that local that progress in and effectiveness Rico’s government next and

that to our confirmation we continue for platform well initiatives, of to will model, strategic court Bank the case now is date believe loss and evaluate your X our new shareholder business America. and towards arguments the May to RMBS decision progress awaiting we various a to diversify for Switching against efforts, in value. which Countrywide With business trial preparation your Once underway. options long-term are we decision optimize drive regards announced, actively litigation hope of the all on main appellate we is recovery

any be will our after measuring previously of stated, we on decision return shareholders. As business new have always to capital

optimistic to In continue in to turn the financial detail. about in Trick call closing, progress XXXX David I generate for our and results priorities ability to long-term strategic continue to to our shareholders. now value actively over to remain discuss material greater we I like our would our David?

David Trick

Thank you, Claude good morning everyone. and to

of of share XXXX, loss first quarter or to second million in share a incurred $XXX $X.XX per compared or of diluted the quarter of the net XXXX. a $X.XX diluted per Ambac $XX.X loss During million net

commutation, the main which execution $XX intangible loss the second the insurance driver was As and the Claude result was restructuring million. of Ballantyne of accelerated discussed assets. loss GAAP quarter amortization a The net of resulted results in a of of

were expenses development loss Ballantyne, In of the derivative quarter second impacted loss results on and addition of loss higher to a by net positive from contracts the quarter to XXXX. at compared first impact net

the while $X loss items insurance assets were earned share Adjusted the the Ballantyne of the of to second Adjusted $XXX primary per expense. compared accelerated quarter. $X.XX earned earnings $XX million Notable premium $XX reduction million million to only continued $XX the the in of the first quarter or $X diluted quarter. transaction. COFINA during the $X difference to realized million in quarter, quarter by insured first premium GAAP million share adjusted being earnings of earnings the $XX to result portfolio. quarter driven mostly the by from commutation, by the the accelerated the premiums premium negative include diluted $XX premiums earnings quarter positive for The realized an decreased Ballantyne mostly gain Accelerated compared swing the related billion was in were of of exclusion due the $X declined amortization versus second in adjusted from between first to per the million million the intangible normal $X.XX about or first a million from second commutation premiums accelerated driven million

the other in and for exchange and portfolio $XX the investment was million, designed COFINA discount $XX accelerated $XXX net at $XX greater into the create insurance of to second held realized source obligations. gains approximately a a from Ballantyne continue other of increase the quarter share decrease principal of for returns these range from gains and investment from gains bonds The AAC related due attractive investments, the for new $XX was which restructuring million Ballantyne increase on was value bonds. redeployed of for other in to XXXX. COFINA sale generate be and diversity sales were second million to the of quarter have million new bonds the Proceeds cash the portfolio. Net quarter. to second and to foreign gains our of The investment first quarter income in income Investment million was

RMBS the expenses proceeding loans million second $XX second long-term $XX produced the lower increase by in by loss million development of was loss recovery $XX reserves. compared an as due rates resulting during UK UK, the a million benefit of an and partially were favorable $XXX the excess benefit discount incurred to the Article and offset driven of student rates. quarter in finance rates previously have in not a million quarter Ambac to an incurred RMBS an second the of accrued and Public Ambac drop were the we mostly interest from Ballantyne of credit an in finance benefit for. quarter. interest of of in quarter and RMBS by million on settlement from mostly and the a commutation. expenses $XX lower XX driven loss $XXX primarily experienced million first result Loss The improvement expense impact another incurred that spread public within combined

first of declines derivative were quarter million periods in and forward than in Net in $XX the $XX million quarter losses the forward by by attributable losses portfolios both $XX contracts rate more the interest Interest to approximately derivative to million rate investment second interest recognized second in driven for on offset gains movements. rates. the for compared quarter were insured

expenses, was increase were Ambac higher driver the $X expenses were million second performance-based the quarter. quarter, first $XX.X Non-compensation triggered by an the of compensation Turning UK in quarter million million, for fees. legal commutation. primarily main $XX.X the second from of quarter $XX employees operating deferred million increase close to million and of expenses to from driven the Ballantyne first payable up $X.X the consulting by The

While This we and the objective, quarter operating stakeholders. in That reducing to including this when focused expenses volatility the increased reduce reduction will insured Ballantyne a our UK over is expenses million. $X nature the our in consultant key will Ambac we which annual given in value implemented. expenses quarter commutation portfolio, expenses a RMBS the million risk changes of reduce significant which related for core and quarter, expenses related successes our our $X.X beginning for by fourth reductions to quarter-to-quarter created fully the by second do de-risking analytics of the Scheduled successes expect operations. the increase of annual which personnel this few aside, beginning operating quarter function this general mostly on platform, note to said, remained towards

increased with intangible to quarter quarter of Insurance million, $XX for million the amortization second XXXX. $XXX the in of XXXX first $XXX million

a the accelerated as $XX As XXXX. was income of Provision first Ballantyne commutation. million result for the to of higher noted quarter $XX taxes the in this was provision quarter the earlier, increase due second amortization for million, the than recognized

commutation. tax gains primarily related to expense the quarter income second from on the The foreign Ballantyne was taxes

increased formal per XX, a sheet, share second by June per $X.XX XXXX on billion adjusted June a and or as $XX.XX basis AFG of balance on held billion at per XX, primarily value to at driven share net $XX.XX June for On earnings. $X.XX million the to decreased from share to shareholders’ Adjusted $XX.XX cash receivables quarter. XXXX. my by share XXXX to the loss increased equity at quarter investments of now mostly to Turning XX, from XXXX, share. XXXX concludes per book remarks. values $X.XX approximately basis, per March Adjusted $XXX XX, That $X.XX XX, book standalone June the March due XXXX XX,

the remarks. turn call will closing for Claude some I to back now

Claude LeBlanc

David. you, Thank

our We quarter. second achievements are of proud the for

Our will execute for and to progress value the I us believe again joining turn the questions. this long-term to commitment shareholders. today. operator now we our deliver reflects Thank strategies on ongoing for call to open you that our the line back will


Thank Bologna comes proceed you. first line question [Operator Our with the your Giuliano from Instructions] Please BTIG. with of question.

Giuliano Bologna

morning. Good

Claude LeBlanc

Good morning.

Giuliano Bologna

CDO approval the capital, Just essentially to the trying year related some the the would buy it loss of for about third that about have of deployment $XXX another deploy proceeds down quarter, you goals you outstanding mitigation do of think to a [indiscernible] any million debt? or for to your in

Claude LeBlanc

different allocation of good perspective, uses to for morning. make the It’s we That’s this we Giuliano. are a a are you expect a a and near-term decision [indiscernible] morning evaluating question. that have evaluating something we couple good but capital still Hi, in from

Giuliano Bologna

sense. question, leases have makes on any are up a Ambac that UK? guess opportunities from business you I now there transaction new Ballantyne That following done, Then or for capital similar other also

Claude LeBlanc

Yes, capital as II the Solvency position quarter. XXX it’s so we XXX about standpoint over million on improvement first whole a down to pounds, getting that II disclose Solvency about pound the million Giuliano, closer are we

and will of threshold that few years. hope improve next quarters next expect reach we II continue Solvency So in over to the couple to

capital to We what standpoint to happens the subject of the have UK, from course particularly regulatory will is approval. with a have in of much PRA discussions release

and the them as later. in positive continue to about of in we solvency with and nonetheless de-risk are discussions there meet the releases, terms in our get than optimistic requirements forward rather have be to engage will that the will path produce couple sooner and there next to but years of UK book have earnings we there position will from We a capital in

David Trick

are that’s use things business capital light On in in small approach. staff evaluating considering opportunities the a can of type will UK new the do front in for we UK terms of process is it primarily of a have the they talented relatively again in scale something that very business [indiscernible] that

if We in future that’s about more talk will that to the have appropriate.

Giuliano Bologna

to there those completing That initiatives? you associated good. really obviously made the sounds very Only one-time savings, platform some cost personnel that the brought you comments at up, the one expense the follow-up RMBS are any of savings about with than cost

Claude LeBlanc

There nothing some second severance additional some the severance have periods, expenses at in the will material. in expenses did is expenses. be and margin severance We but quarter, the is marginal potentially additional future

Giuliano Bologna

you That’s great. my taking questions. Thank for

Claude LeBlanc

Sure. Thank you.


participation. Instructions] Thank thank time. at you. [Operator for concludes This your there Ladies no conference. this further We questions are and you today’s gentlemen,

You again. your may you disconnect now once lines. Thank