A Tale of Two Gappers: AMBAC vs. Freddie Mac

Posted in General 
August 6th, 2008

We have quite a different outcome for two key mortgage players this morning.  Ambac Financial Group, Inc. (NYSE: ABK) and Freddie Mac (NYSE: FRE) both reported earnings, yet they are as different as night and day.

Ambac is seeing a share gain of about 4% right before the open.  The company actually managed to post an earnings gain because it took out certain hedging transactions against its operations.  Its loss from operations was $1.53 per share, but its $961.6 million non-cash gains helped the company post a net income number of $823.1 million.  Traders are so far giving it the benefit of the doubt with shares up almost 10% at $5.20 pre-market.  Its 52-week trading range is $1.04 to $74.78.

Freddie Mac is a completelely different tale.  The GSE posted an $821 million loss and is also cutting its dividend as many would have guessed. The company is still recovering from the reports of the CEO being warned four years ago about leverage issues. It also affirmed plans to raise $5.5 Billion in additional capital. Shares are down 15% at $6.85 in the final minutes right before the open.

As far as sympathy trades, traders may look to Freddie Mac’s outlaw cousin Fannie Mae (NYSE: FNM) and MBIA Inc. (NYSE: MBI) is often thought of as “the other Ambac.”

Jon C. Ogg
August 6, 2008

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