Assured Guaranty Ltd., parent of the dominant bond insurers in the public finance market, announced late Monday a third-quarter loss of $35 million, or 22 cents per share, consistent with preliminary estimates released Tuesday.
The company is the parent of Assured Guaranty Corp. and Assured Guaranty Municipal Corp. The latter, formerly called Financial Security Assurance, was acquired on July 1.
The losses compare favorably to a net loss of $63.3 million, or 69 cents per share, in the same period last year. Moreover, the company noted that when expenses related to the FSA acquisition are excluded, operating income increased 132% compared to the same period last year.
“Our operating earnings were positive, despite the losses on the U.S. residential mortgage-backed securities that we insured, demonstrating the enhanced earnings power of the combined companies,” said Dominic Frederico, president and chief executive officer of the parent company.
In a 10Q filing with the Securities and Exchange Commission, Assured said residential mortgage-backed securities were largely to blame for material losses in the financial guaranty industry.
The “adverse development” on RMBS within the second-lien sectors, as well as increased losses in the municipal and insurance securitization sector, contributed to a $133.3 million loss in the three-month period, compared with a loss of $82.5 million in the third quarter of 2008.
“These losses and the ensuing erosion of liquidity in global capital markets has resulted in a significantly different business environment and market opportunity for the company starting in 2007 and continuing into 2009,” the 10Q filing said.
Frederico said the acquisition of FSA “has added significantly to our invested assets and future revenues.” He added that the company intends “to complete capital initiatives by year-end that include already negotiated external reinsurance, intercompany capital support, and $300 million of external capital.”
Language in the company’s 10Q filing, however, was less confident.
“The company may not be able to implement the capital-strengthening initiatives fully or at all, and its ratings may be downgraded by one or more of the rating agencies as a result,” it said. “Even if such capital-strengthening initiatives were available, the cost of the capital relief may be high and therefore result in increased expense to the company or dilution to AGL’s shareholders.”
Moody’s Investors Service last week downgraded Assured Guaranty Corp. one notch to Aa3 from Aa2, while Assured Guaranty Municipal Corp., the former FSA, retained its Aa3 rating.