Thursday, November 5, 2009

Mark-to-market accounting fail

Ambac Financial Group reported a $2.19 billion quarterly profit Wednesday as the company got a big accounting boost from deterioration in the perceived creditworthiness of its main bond insurance unit.

Most the gain came as credit spreads widened on Ambac Assurance Corporation, the company’s main bond insurance subsidiary. When credit spreads widen, that implies investors are more concerned about a company not being able to meet its obligations. However, when this happens, it reduces some of the insurer’s liabilities. ... That results in a derivatives gain.
--Alistair Barr, MarketWatch, on winning by losing. HT: Donald Marron

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