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AMBAC Financial (AMBC)

Participants
Lisa Kampf MD, IR
Claude LeBlanc President, CEO & Director
David Trick EVP, CFO & Treasurer
Giuliano Bologna BTIG
Call transcript
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Operator

Greetings, and welcome to the Ambac Financial Group, Inc.

Third Quarter 2019 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your hosts, Ms. Investor Chief LeBlanc, Financial of and Executive Head Trick, David Officer. Kampf, Relations; Chief Claude Officer; Lisa

I will now turn the call over to Lisa.

Lisa Kampf

possibly of in materially morning, of to Group's contain forward-looking is information, forward-looking Good our today's and remind any Financial you Condition results. you. and or update any Results presentation all to you Thank that Management's may and under are today's or Factors for statements, described based current SEC this under We'd conference expressly like call management's any recent uncertainty a may on which under of could quarterly Ambac and not filed as to cause Any future from quarter guarantees such new most in annual discuss whether third Financial factors Factors. Risk Analysis performance result include changes obligation not and circumstances. that expectations Ambac the XXXX and events. disclaims future Operation differ performance of reports are events events forward-looking forward-looking financial statements. and to statements thank and Actual joining obligation of are otherwise. statements, subject Discussion

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

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

Claude LeBlanc

per or at at to adjusted increase per income Adjusted today's million share an value resulting to call. quarter, were XX. share in of value in of September as $X.XX diluted book everyone share September Lisa, share you, $XX.X $X.XX Ambac Yesterday, $XX.XX increase or as in joining earnings the an diluted Thank reported welcome book $XX.XX $X.XX per and to net for per $X.XX million and third $XX.X XX. of

$XXX connection recognition the SEC the and action speak The This with restructuring greater sheet holistic notes which further be delever connection quarter's on the allow detail costs. transaction. to payment be next to from a favorable cash proceeds moment. our date results results will down financial scheduled third in issued and applied quarter payment, settlement the in to in interest All Trick our used realization settlement will in of reduce pay us will which this balance David million secured against our future drove Citigroup, net income. received include with the will a

we insured quarter, portfolio. the make the in our significant of During derisking progress to continued

Our watch reduced primary Active with by classified the our portfolio, insured on billion, credits. and credits. year-to-date and which list insured representing stands net of XX% billion driver adversely was decline list $XX $X.X that been billion XX% of watch the classified portfolio adversely $X.X overall approximately approximately and year-to-date accelerated on has derisking the par to of at decline

included a transaction quarter classified insured total derisking adversely of reinsurance ceding portfolio par public credits, $XXX the X% significant and of of June net or performing exposure finance credits. XX. at of shaping included of transactions watch our billion and key for completed One transaction our par portfolio million approximately This almost during a $X.X also list

value our further facilitates insurance insured the and optionality insured risk adversely credits, in particular, platform our classified reduce our to our of watch increase of book optimizes goals quality with portfolio. exposure, remaining our to significantly reduction respect and and improve Our list our

balances because for Plan cash Ambac believes expenses. a incorrect many Plan true pledged debt Commonwealth's plan projections estimates cannot patently the lack than revenue debt in simply risks board inappropriately the allocating with assumptions, years that the premised holistic this incorrect creditors underestimate fiscal the the Adjustment, Puerto fiscal of Commonwealth it deeply litigation. Ambac given leans of willingness flawed embroiling all the shows plan Adjustment a the of rights the entirely, XX, capacity proceed backwards is were Oversight of revenues Ambac disregards Plan which door to to filing, Puerto as to Rather payment for of support that the protracted opposes in a service court. more it on would a the step majority before ability demonstrably now Rico with Oversight pay. agreement Turning September capacity Board Commonwealth severely negotiating and debt of bondholder reasonable Commonwealth evident, also of and and pay, filed is of Adjustment Rico. consensual On chose Board to a If Commonwealth restructuring. opening plan reconcile Commonwealth's correct become it to

Puerto on Evidence Adjustment Oversight part continue October Board's XX expectations. and so in to We with its facilitate of financial realities as The Puerto with to rights creditor reflect acceptable restructuring to would the the market Rico. plan of arrive blatant the so agreement assumptions to release information of the to and the and ignored. a urge economic Doing Oversight the Board shared to effects rights continue realistic of people Board's destructive increasingly as aggressively prolong the current a Plan Oversight and process an consensual bankruptcy revise defend of deals. the at will actual litigate start on Rico will be creditors. be fiscal were long-term economic errors long Commonwealth unsupportable debt and performance path Ambac to only

September decided latest X Countrywide November The the with October trial were was scheduled not own XX. and a our at that First to for its trial delay the and/or to in Ambac this Department recovery RMBS Bank that the plaintiffs Department trial to warrants our May Appeals, put viable. helpful we case court to the Consistent September, also of all remains First in motion appeals those that the very argued Division clear were claim that against to do in decision bridging loss in and set America. to plan claim in Bank Nevertheless, may Justice motion. the of our additional practice, Department the grant is First Appellate this the whether efforts efforts. affirming in main favorable and Sherwood our It in maneuver moving on now believe proceed not Department In to America to date issued a Court filed forward the the our case the our to favorable contract respect cases and we ask of appeal First and cases RMBS decisions legal off of The Switching to and and with case. loans fraud leave past for reargument York continues with upcoming conference New to will highest other state.

relates sectors to it we'll As it attractive see update and provide new evaluate business business, when in to continued various and is an new opportunities we appropriate.

and SEC achieving in main strong of significant against In the our closing, another success we on portfolio, America/Countrywide. recovery with reducing a settlement Bank case decisions on favorable our insured had Citi quarter measurable

demonstrate, strategic progress which executing results remainder we on continue priorities to will our we remain our the focused of As pursuing on during keenly and XXXX.

results the now David over in Trick greater to financial call discuss I our detail. David? would turn to to like

David Trick

morning, everyone. and Claude, you, Thank good

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

the net SEC of from for of driver main income in was the noted, were settlement, Claude Citigroup As proceeds recognition the third gain quarter million which from received the September. $XXX

quarter beneficial entire an million be and pay million, expense at end results $XXX will Ballantyne annualized to of gross million down loss. of by The the by $XX rates. GAAP AAC's in proceeds which impacted X-month while and Second used current interest respectively, adversely comparison notes LIBOR economically secured approximately million $XX were the settlement contributed commutation, reducing on year, based the $XX net

$X.XX the both is assets. million between per or second in Adjusted the to of main with million $XX share $X.XX expense earnings amortization earnings for an third and diluted earnings our $XX quarter. intangible quarter associated diluted difference the share to for were adjusted adjusted compared driver insurance quarters or GAAP The per the

third quarter. The second runoff now in Now the from of perspective earned $X some -- for the offset a in and uncollectible $X million insured negative experienced commutation, Ballantyne portfolio inclusion resulted $X in associated for net accretion more the XXXX. was $XX quarter Premiums Ballantyne the third were second quarter. from $XX million from on $XX on of some increase during The by million second resulting for income million the quarter the premiums increase during accelerated quarter, a the the Ballantyne quarter. in commutation. million third notes to million Investment million, with due mostly the premium owned investment decrease second quarter of income $XX decrease accelerated the is versus

realized and into attractive the at greater gains generate COFINA are Net of sale diversity designed create expanded portfolio other which Ambac Proceeds redeployed million cash of were bonds in from bonds obligations. and quarter, exchange insurance uninsured to third gains the U.K. and for on the an risk-adjusted included hand our foreign of investment to more gains are AAC from defease returns being range the at sale and which $XX COFINA investments,

lower loans remaining ongoing and discount of an second aggressive our to $XX changes quarter. a was reserves, rates third benefit regards primarily whereas Public student impact $XX offset were The to due was credit increase expense driven in were student incurred $XX from loss higher improved to RMBS Rico the the efforts to excess of and experience by to development. expenses mitigate with interest the million particularly benefit the recoveries. of third increase The primarily the reserves, in finance to loss million expenses $XXX and by public of Loss an by in loan finance non-COFINA mostly our driven in assumption in Puerto $XX RMBS due compared related lower quarter risk. third favorable million due million to on in in benefit spread, quarter quarter million the partially was rates, losses

more derivative were foreign on in periods were gains for quarter. to by interest rate of million losses due quarter the values than investment portfolios, interest compared for to Interest declines Net derivative in rates quarter offset in in quarter. the third third million the recognized million a $XX $XX third in insured contracts were movements. reduction of forward the second and $XX carrying in sensitivity by Losses the hedge losses driven both the rate

million space costs by Rent quarter. expenses approximately of million, in our due in mostly Operating the redemption result notes, offset to Compensation relative third consulting quarters costs quarter XXXX per the was quarter the our will these $XX was second in redemption cost at which million. costs partially compensation XXXX. lease, incentive-based November junior severance second compensation expense decreased driven expense of were reduction to quarter the million by of third our also expense included absence quarter inclusion The XXXX certain lower experience The which corporate surplus the mostly the old we offset down second a rent the $X.X of second million decline expenses. Noncompensation legal from initiative. the new of for restructuring. by final $X.X third Ballantyne lower for to quarter in as third the headquarters quarterly headquarters connection June Lower first XXXX. were expense XXXX, compared of quarter the the of our in approximately and the $X.X rightsizing million overlap to with related and in expenses offset the modestly of ends short-term to third by and from quarter quarter until rent continuous in our $XX.X of consolidation. were Beginning had $X

expenses. met short-term noted if be sustainable are Our incurred payback focus result volatility actions expenses absolute cost-cutting our to disciplined often as reduction with is only in expenses, upfront Nonetheless, in approach core short-term as costs. and are reducing on operating and longer-term and/or previously, such we the overlapping our will

increased $X XX, the September XXXX, at billion share billion to to primarily to driven adjusted at net XXXX, per September for $X.XX per quarter from equity third by from quarter. Adjusted share $XX.XX Shareholders' sheet. the receivables income at $XX.XX balance due to basis at basis, June ceded premiums share Turning XXXX, value increased XX, executed XX, $X.XX this to XX, book the June primarily book XXXX, transaction by the offset September XXXX. increased on stand-alone September partially reinsurance XXXX, Adjusted or $XX.XX and per earnings, per XX, share million $XXX as quarter. value held investments $X.XX of approximately of under AFG share. On to a cash, a per XX,

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

Claude LeBlanc

Thank you, David.

take to to strengthen our position shareholders accomplishments and our measurable to Our reflect platform future. for our commitment year-to-date the Ambac steps

joining Operator, call. for you questions. call on the us Thank today's please open for

Operator

Instructions]. [Operator

first Giuliano Bologna Our comes the line from with question of BTIG.

Giuliano Bologna

another of is timing side execution. and Congratulations Thinking it'd the take courts, good some of have come on warranty have to And out based quarter rep about -- the on rulings in interesting front related warranty legal the of other Obviously, there the your rep the any on on to but that developments get world. the if been recent and any on related claims? cases? be

Claude LeBlanc

favor and that in rulings the the First relating a other Department decisions Giuliano. been of the case the were those First our similar of Thanks, Yes. in There ruled on number were notice have ruled favorably Department matter plaintiffs. to that

also So panels other First view in cases with we as a judges alongside agreed number that on those Department the the our a these cases. uniform the highlighting view perspective have of

our So ruling not deterministic the our the related again, that supportive. to be consistent think it's to in were case, decisions I of with of case, favor there all It's pattern a plaintiffs. very but seems

Giuliano Bologna

any up good. guys reinsurance to you side. some other or legacy derisking thinking clean doing servicers the there are the with for working of on what And about large sounds structured That transactions opportunities deals? Are then other

Claude LeBlanc

availability of deep are transactions, looking where introduce pricing, the derisk. we in particular, environment -- terms Yes. the to that credit and will in We've but rate in very rigorous do to in terms and the got individual pursuing have these pipeline and implement. cycle with of timing opportunities of are some we we a the evaluating issues of opportunities see their opportunity, opportunities that low-interest pretty and do It's the and relating of a -- process vary of timing to aggressively we the

the On believe the the and to we've opportunities to last derisking significant sculping reinsurance side, the we years. shaping continue could it's be evaluate whether number transfer continue types different number form the risk derisking, and of the alternative that on been to as of we opportunities reinsurance, that that evaluates And portfolio. able expand of develop other market over options or to

sculp So the run-off to improve the believe number profile we of and opportunities be continue to are help there portfolio overall other a the will excited will credit of that us business.

Giuliano Bologna

a then mentioned And sooner? notes the of notes you than opportunities more That they those on securities of with sounds that a the Are portion CDO obviously, good. out the as investment the to a secured plan cost I pay you other an taking proceeds. guys expensive in asset, City down know lot investment portfolio. there have any

is near there accretion be you by Or other notes paying off that? of do so are it more there think -- So derisking? some some Are in earlier? any opportunities the there those on to would focused do term

David Trick

obviously, regards to capital derisking frankly quite about regularly, sorry. -- there's activity, That's quite we needs Giuliano. evaluate the capital, allocating frequently, talk something we When with

weigh time. the all we those so And

have you of liabilities We and to positive a when kind number we that break down the do also various allocate portfolio have against carry debt. the generating that as are investments different of relative the --

course, at on of average particularly interest the standpoint. the notes we sheet from on causes average carry with So day, have portfolio the that to significant but and on the of we the which balance recognize yield warranty, yield below ultimately secured you is accretion that an end negative note, regards as asset debt, rep the the the the don't

and capital that paid note are are outstanding, ultimately, the had the that significantly is -- that how million short down down -- there since of spend note continue answer the And in with the allocate we we're this thoughtful we've $XXX but So amount. terms to liquidity we'll that $XXX that of but million we've around note pay arise. opportunities yes, would increase when opportunities selectively that,

Operator

you. [Operator Instructions]. Thank

the today's of end We for thank you the reached and have question-and-answer conclusion participation. We session your our teleconference. of

at wonderful disconnect have may lines day. this time, You your a and