Fidelity Management & Research’s gave its stamp of approval to Ambac Financial Group on Thursday, but the move was overshadowed by the revelation that JPMorgan Chase slashed its stake in the ailing bond insurer.
Fidelity Management & Research, acts as an investment adviser to Fidelity Investment’s family of mutual funds, and is Ambac’s largest shareholder.Investment Advice It disclosed in a Securities and Exchange Commission filing that it raised its stake in Ambac to 11.8% from 3.4%. It now owns 34.2 million shares.
Investors didn’t seem to share Fidelity’s optimism. Ambac’s shares fell 6.7%, or 38 cents, to $5.27, at the close on Thursday.
Fidelity’s move came on the same day that JPMorgan Chase (nyse: JPM - news - people ) reported slashing its stake in Ambac to less than 1.0%, in a filing with the Securities and Exchange Commission.
JPMorgan now owns about 1.4 million shares, or a 0.4% stake, in Ambac. It previously reported owning 7.8 million Ambac shares, representing a 7.7% stake.
JPMorgan and Fidelity reported their holdings via Schedule 13G filings, which indicate the investments are meant to be passive and that the shares weren’t acquired to influence control of the company.
On March 12, Ambac said that Moody’s Investors Service and Standard & Poor’s Ratings Services affirmed their triple-A ratings for its bond insurance arm after it raised $1.5 billion in capital a week earlier. That maneuver disappointed Wall Street, which was expecting a bank bailout. (See “ Ambac’s Surprisingly Strong Day†and “ Ambac Gets Handout, Not Bailoutâ€) Ambac was forced to increase its capital base to cover the rising likelihood of defaults mortgage-backed bonds, a result of the U.S. subprime mortgage crisis.
Two days later, Chief Executive Officer Michael Callen of Ambac told Wall Street that his firm is in the “risk business†and is operating “in the most stressed credit environment that I can recall in my 40-year involvement with the financial marketplace.†Even so, Callen remained confident that Ambac will “weather the storm.†(See ” Ambac’s Alright — Just Ask Them”)
Piper Jaffray analyst Michael F. Grasher agrees with Callen — Investment Advice and, apparently, Fidelity — that bond insurers, including Ambac and MBIA (nyse: MBI - news - people ), are going to make a comeback. “In six months you’re going to have a different picture about the outlook,†Grasher said. “The valuation on Ambac is assuming a very worst-case scenario. The reality is that once we get through September/October we should know with greater certainty about ultimate losses. Because of that it certainly is time for investors to be taking a look.â€
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