What happened
Insurance company Ambac Financial (AMBC +5.03%), which provides products such as bond insurance, reported a third-quarter adjusted loss of $149.8 million, or $3.30 per share, down from a profit of $70.4 million a year ago. This missed expectations by a mile, as analysts had been expecting a profit of $1.05 for the quarter.
This caused Ambac's adjusted book value to fall by $3.79 per share to $24.56.
On the positive side of things, Ambac said that its corporate restructuring was completed, which will reduce the company's compensation expenses by 20%.
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So what
The company said that the primary reason for the loss is development of its reserves to cover Puerto Rico-related losses. Ambac insures many Puerto Rico bonds, and if you're not familiar with Puerto Rico's debt crisis, the quick version would be to say that Puerto Rico owes its creditors more than $70 billion, which it can no longer handle repayment of. Puerto Rico filed for bankruptcy in May. To make matters worse, the recent hurricanes only added to the island's financial problems.
According to Claude LeBlanc, Ambac's president and CEO, "While our third quarter results reflect the uncertainty surrounding Puerto Rico, we continue to make progress toward improving Ambac's risk profile and financial stability by executing against our strategic priorities."
Now what
Ambac's drop is a pretty clear-cut case of a company losing money and investors bidding the price of the stock down to compensate for its now-lower intrinsic value. Ambac's cost-cutting measures could certainly translate into higher profits going forward, but for now, investors are simply disappointed in the magnitude of the company's loss.
