Where does ABK go from here?  Comments are welcome.

Shares of Ambac Financial Group (NYSE: ABK, Stock Forum) jumped 53.2% to $2.13 Tuesday after the company released information late yesterday about collateral requirements and terminations of its investment agreement business related to recent actions by the rating agencies, “in response to persistent and unfounded speculation” regarding its liquidity situation.

"Despite the challenging current environment, it is important for us to continually communicate that we have ample liquidity to manage our commitments going forward," says the company’s chairman and chief executive officer, Michael Callen.

The company notes that rating agency actions affecting Ambac Assurance Corporation in June resulted in $506 million of increased collateral posting requirements in the investment agreement business and investment agreement terminations of $270 million. AAC was downgraded by Standard & Poor's to AA on June 5, resulted in an incremental collateral posting requirement of approximately $76 million, says the company, while Moody's downgrade of AAC to Aa3 on June 19 resulted in an incremental collateral posting requirement of approximately $70 million and investment agreement terminations of approximately $270 million. The action by Fitch to withdraw the ratings of AAC on June 26 resulted in an incremental collateral posting requirement of approximately $360 million, says Ambac.

The book value of investment agreement liabilities as of May 31 amounted to $6.9 billion, down from $7.7 billion as of December 31, says Ambac. The market value of the investment agreement asset portfolio, including cash of approximately $400 million, as of May 31, is approximately $5.6 billion. The market value of interest rate derivative contracts held by the investment agreement business is $160 million, says the company’s news release.

Ambac says in the event of cash and/or security shortfalls in the investment agreement business, it anticipates using the resources of AAC through inter-company transactions.

Good question, Luego,

If I'm a fundamental analysis oriented investor, it would be easy to answer your question. But I'm not. "Turnaround Tuesday" was my strategy yesterday. I covered all my shorts in the morning's weakness, and was searching for the relatively strong stocks in the strongest sector. I decided to go with the financials, and loaded up with ABK, MTG, PMI, MBI, WM, WB, FNE, FNM, UYG, (SKF), and made a profit of 40k or so. If the market didn't rally hard last hour and an half, I would have been in trouble. It was one of those lucky days for me.

Thanks for the post, coal for you and me. It is great. Good luck!

Well, Azsky don’t be so modest. You make it sound like you are riding “the wave” on pure luck. Surely there is more to it than just instinct. When I saw ABK jumping 53% on the buddy board and you happen to buy it that day, I immediately thought: “How does Azsky pick the daily winners?”

Now we know, and thanks for sharing.

Happy trading…