Ambac Financial Group shares rise for 2nd day following settlement with Lehman

Ambac Financial gets 2nd bump on Lehman settlement

NEW YORK — Shares of Ambac Financial Group Inc. spiked for a second day after the troubled bond insurer reached a deal with bankrupt Lehman Brothers Holdings Inc. regarding claims the two filed against each other.

THE SPARK: Late Tuesday, Lehman Brothers submitted a filing to U.S. Bankruptcy Court in New York describing the deal, which would see Ambac Assurance Inc., Ambac Financial’s largest operating subsidiary, drop its claim for $6.1 billion against Lehman. In return, Lehman agreed to drop its claim for tens of millions from Ambac Assurance. While technically a settlement, no money will change hands in the deal.

THE BIG PICTURE: The claims were filed following Lehman’s spectacular collapse in September 2008, and stemmed the billions of dollars of deals in mortgage-backed securities and credit default swaps that brought the venerable investment bank down. A hearing date of Oct. 20 was set by the U.S. Bankruptcy Court in New York to review the deal.

THE ANALYSIS: The agreement settles some of the uncertainty surround Ambac Assurance, whose most troubled assets were taken over by Wisconsin regulators earlier this year.

But while traders have given the parent company a two-day bounce, the company is not yet out of the woods. Ambac Financial has said in several regulatory filings it believes it has enough cash to get through the second financial quarter of 2011. But it remains saddled with debt. In regulatory filings, it has said it may seek bankruptcy protection if it can’t reach a deal to restructure its debt.

SHARE ACTION: Ambac Financial Group shares added 12 cents, or 14.8 percent, to 90 cents in midday trading on more than double normal trading volume. The stock posted a 32 percent gain in Wednesday trading.