Shares slide on shake-up at Ambac

Shares of Ambac Financial Group Inc. plunged 39% on Wednesday after the bond insurer slashed its dividend by two-thirds, replaced its chief executive and said it would take a $5.4-billion write-down on its investment portfolio.

Ambac also said it planned to raise $1 billion by selling stock and other instruments as part of an effort to maintain its AAA financial strength rating.

The company’s stock tumbled $8.17 to $12.97.

Fitch Ratings has warned it would downgrade Ambac if it was unable to raise at least $1 billion to cover potential losses. Bond insurers essentially need a AAA rating to continue booking new business.

The fear is that in the wake of surging mortgage defaults Ambac and its competitors, even with new capital, might not be able to cover all the claims on the mortgage-backed bonds they have insured.

Rating firm Standard & Poor’s said Wednesday that it would start a new examination of bond insurers, one month after affirming their AAA ratings. S&P cited its increased forecast for losses on sub-prime mortgages.

One of Ambac’s chief competitors, MBIA Inc., recently sold $1 billion in bonds to retain its AAA rating. But it reportedly had to pay a 14% interest rate to attract investors.

College operator guilty of fraud

Apollo Group Inc., operator of the for-profit University of Phoenix, fraudulently misled investors in 2004 about its student recruitment policies, a federal jury decided Wednesday. The panel ordered the company to pay shareholders $280 million.

After a two-month trial in federal court in Phoenix, jurors said Apollo officials “knowingly and recklessly” made false statements in a news release, a filing with the Securities and Exchange Commission and four conference calls with market analysts. By doing so, jurors said, Apollo violated federal securities laws.

The jury said the company had to pay certain investors $5.55 a share.

Apollo, which reported $780.7 million in revenue in the first quarter, said it hadn’t decided whether to appeal.

The company’s shares dropped $1.36, or 1.7%, to $78.57 on Wednesday.

Shareholders claimed that Apollo misled investors four years ago when it kept secret a Department of Education report that concluded the university violated federal regulations by paying enrollment counselors based on how many students they enrolled.

Apollo contended that the report was largely false and based on anecdotal evidence. Therefore, the company said, its failure to disclose the report’s existence to investors was not misleading.

Nevertheless, the University of Phoenix agreed in September 2004 to pay the Department of Education $9.8 million to settle the matter. When news of the report was made public later that month, Apollo’s stock dropped significantly.

Lobbying group names new CEO

T. Timothy Ryan Jr., a former JPMorgan Chase & Co. investment banker, was named chief executive of Wall Street’s biggest lobbying group.

The Securities Industry and Financial Markets Assn. said Ryan would succeed Marc Lackritz, who retired Dec. 31.

Ryan has been vice chairman of investment banking for financial institutions and governments at JPMorgan.

Before joining JPMorgan in 1993, Ryan was director of the U.S. Treasury’s Office of Thrift Supervision.

From Times Wire Services