Greetings and welcome to the Ambac Financial Group First Quarter Fiscal Year 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Sean Leonard, Senior Vice President and Chief Financial Officer for Ambac Financial Group. Thank you. You may begin.

Thank you. Good morning. Welcome everyone to Ambac’s first quarter conference call. I am Sean Leonard, Chief Financial Officer of Ambac. With me today are Michael Callen, Chairman and CEO; David Wallace, Chief Risk Officer; and Bob Shoback, Head of US Public Finance. Our earnings press release, quarterly operating supplement, and a slide presentation that follows this discussion are available on our website. I recommend that you follow along with the slide presentation as we speak today. Also note that this call is being broadcast on the Internet. I will also like to remind you before we get started that during this conference call, we may make statements that would be regarded as forward-looking statements. These statements may relate to, among other things, management’s current expectations on future performance, future results and cash flows and market outlook. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our current analysis of existing trends and information as of the date of this presentation and there is inherent risk that actual results, performance or achievements could differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. These differences could arise from a number of factors. Information concerning factors that could actually cause results to differ materially from the information we will give you is available in our press release and our most recent Form 10-K and subsequently filed 8-Ks. You should review these materials for a complete discussions of these factors and other risks. Copies of these documents maybe obtained from the SEC website. I would now like to turn it over to Mike Callen, who will comment on the current market environment and Ambac’s prospects.

Thanks, Sean, and thank you, ladies and gentlemen, for joining us. The first quarter was indeed another tough one for Ambac. Earlier expectations have turned out to be optimistic and the environment continue to deteriorate. As you know, we raised 1.5 billion of additional capital under what I would consider to be near impossible conditions and were awarded affirmations or AAA ratings by Moody’s and S&P. We also strengthened our risk management and refocused our business, and we can’t dismiss the serious impact market events have had on Ambac during this quarter. But, the current environment highlights some key strengths of the business model. In fact, I think the business model is more relevant than it’s ever been. Until now, this guarantee model has not been seriously tested. Ambac founded the financial guarantee industry over 37 years ago, and since then we have experienced variable claims and they were easily met from operating earnings. Our considerable claims paying resources were maintained the guard against unexpected losses, but were never drawn upon. We are now experiencing an environment that many, and certainly myself, considered highly improbable. Given this, it should not be too surprised that Ambac will pay sizable claims and need to draw on those claims and resources. Yet, I can say that I am highly confident that we will be a stronger company for having managed through this period. It’s worth noting the key feature of the business and that is that we only guarantee scheduled principal and interest. We are not subject to acceleration or collateral posting on our insured obligations. We have seen financial institutions suffer liquidity problems and [teeter on the brick], but liquidity has never been an issue for Ambac. Paid claims to-date have been minimal and our conservatively managed investment portfolio has held up…

Thank you, Mike. First, I would like to start off with a brief discussion about the capital raise that was priced on March 6 and completed on March 12. In total, we raised 1.5 billion of capital that was comprised of 1.25 billion offering, a more than 181 million shares of common stock at 6.75 per share. Concurrent with that sale, we raised 250 million through an offering of 5 million equity units at a price of %50 per unit. All of the net proceeds from the capital raised were contributed to Ambac Assurance with the exceptional of 100 million, which was maintained at the holding company to provide incremental holding company liquidity to pay debt service to cover operating expenses and to pay dividends on common stock. The remaining net proceeds, which totaled over 1.3 billion from Ambac Assurance’s claims paying resources to a level determined sufficient by Moody’s and S&P to maintain a AAA rating. This kept the rating at AA. All three agencies took us of rating watch or review for downgrade but kept us on negative outlook reflecting the ongoing uncertainty in the mortgage market. Now, I’ll turn to our financial results for the quarter. Our bottom line first quarter earnings are certainly reflective of the stress mortgage environment, having recorded our second large GAAP net loss in a row, coming in at a loss of 1.66 billion or 11.69 per share. I will provide a brief overview of the results but will spend more time on the credit related issues. Normal earned premium amounted to 172.9 million in the quarter, declining 3.4 million primarily due to December 2007 Assured Guaranty [seed]. If not for the seed to Assured, normal earned premium would have increased. Given that we wrote very little business during the quarter, this…

Thanks, Sean. This morning I am going to focus on the direct RMBS and CDO of ABS books. For those of you following on the webcast we are now on page 10. Direct RMBS book has seen some $5.3 million of amortization in the last quarter. The majority of this has come form international deals and to a lesser extent domestic HELOC book, which declined by around 600 million. The focus of discussion of the direct book will be Closed-End Second segment, HELOCs, and midprime or Alt-A, as it’s Alternative. These are the sectors, which have experienced most degradation and where we have taken reserves. The 8.1 billion subprime element of the portfolio continues to perform satisfactorily in the market context and we will briefly review this too. The ABS CDO book has shown continued deterioration particularly in the CDO-squared transactions. Given rising cumulative loss estimates and the consequent ratings downgrades of the underlying RMBS, the inherent legal structure of these leveraged transactions can give to rise to extreme severity outcomes, and we have now effectively written off some significant exposures. I will discuss this in some detail later in this presentation. Secondly, we continue to closely monitor the high grade CDO exposures in our book. These high grade transactions have fundamentally different characteristics from the CDO-squareds as their basis building block is not the BBB tranch of an RMBS deal, but instead a significantly more highly rated tranch. The transactions also are generally cash deals with synthetic components of less than 10 to 20%, which is important. This cash bonds are not subject to credit events like implied write-down or distressed rating down-breaks, which can introduce cliff like default propensities. Finally, the RMBS component pieces of the high grade transactions are not subject to the possibility of liquidation by…

Thanks David, and thank you, Sean. The worst maybe behind us, but rest assured that we recognize we are working through a crisis of confidence. With a passage of entire world will clarify that in the meantime we only have projections. There has been a number of published estimates concerning Ambac’s ultimate losses. We don’t endorse any of these analyses but they do provide other data points even if we feel that there are sometimes excessively pessimistic. So, in an effort to increase the transparency of our company, we intend to post some of these analyses on our website and we will provide other relevant information that we hope will be informative and helpful. Recently, we announce the large scale effort to deal with the high cost of auction rate and variable rate demand bonds to carry or guarantee. I want to assure our clients that we are dedicated to resolving these issues, as aggressively as possible. I’m personally committed to see in that this matter is carried through to on early resolution. Our success in the competitive big municipal sector has been improving and new business production on the secondary market during the first two weeks of the April. It will be entire production in the first quarter. So well early signs are encouraging we realize that Ambac is a long way from this trajectory at needs to be return to the market and in full strength. The competitive environment has improved considerably spreads are wide at about 25% of the moral line capacity as exited the market. I believe that investors a year from now will look back and conclude that our company survives the worst case. But about this I am absolutely certain investor and Ambac wrap paper will not have missed a single principle or interest payment. So before we open for questions I want to briefly mention the proxy that was filed in April 21, we are asking share holders to book on increase on the authorize shares from $350 million to $650 million. As most of you know the capital raised in March substantially decreased the number of un-issued shares this increase is reflective our prior un-issued share position and that will provide flexibility to meet future business and financial needs. The board has no current plans to issue or utilize these additional shares and now we would welcome your questions.

Thank you. (Operator instructions). Our first question comes from Andrew Wessel with J.P. Morgan. Please state your question

And I am Callen, I would just like to say that there is any good news here is the fact that our internal capital generation has resulted run-off as it succeeded our expectations. We are currently running at first quarter rate that exceeds billion sign for the year and I’m talking about the Moody’s model. You had another question.

Yeah great, thank you. That’s a helpful point. And then the other questions which just resolves around staffing. I assume, first there has obviously been soon the steps on underwriting there has been as recently has five to six month ago, I think again also told that there is no expectation of loss across any CDOs and then of course in the fourth quarter happened and now some mortgage losses are ticking up. You have talked about changes you made from actually on a staffing level was then the credit risk or the underwriting group kind of deal with this and statements have been made and that also as kind of pair on that question. Your current staffing levels, what kind of assumption are you making in terms of when you will be back up in underwriting business or is that not part of the decision?

If you were to look at those responsible for these underwriting decisions, you frankly would not find them here any longer, so I think appropriate accountability has been put in place. People ask where is the accountability across the board and back as I think most people are aware Andrew has for a long time loaded up there compensation structure with equity. The last time, I looked I think the senior management has had decline in their network, which is appropriate of some $70 million or $80 million, so everybody is feeling this pain. I will also tell you that we just recently because the staffing that we currently have which is down about -- this is a guess, I couldn’t get back for them exact numbers, something in the neighborhood of 50 people. We have now internal staff that we want to keep in place and in fact have we initiated recently a bonus guarantee for the year because you have to manage the psychology going on and we have great faith in the staff that we have been placed now. Our assumption in terms of new business generation is that we have to demonstrate a quarter or two of losses having been recognized and I want to control on having plateaus. So I would say that the way I look at this the first of next year we will back up and running or their above.

Okay, great. Thank you very much.

Thank you. Our next question comes from Tamara Kravec with Bank of America Securities. Please state your question.

Thank you. Good morning. I had a couple of questions and David drew out a lot of numbers, but I was hoping just to get a broad brush of your thought on the Closed-End Second Portfolio versus the HELOC because you clearly asked five transactions that are accounting for the majority of reserve on the Closed-End than you have of 7 transactions on the HELOC side. Are you seeing -- you don’t seem like you reserved this much of that portfolio, so I will be curious if you could just talk about the assumptions you have made in your reserving of HELOC versus Closed-End and in light of that maybe bring in my comment about the Closed-End Second reaching 80% losses that at some point. And then my other question is, there was some talk of acceleration and liquidation, I think on the CDO side and if you can give us an idea of the criteria for liquidations and you would consider and how that would impact your portfolio, your cash flow of the financials? That would be very helpful. Thank you.

The HELOC portfolio and you are right and there is a lot of data, we are just trying to get this much as we can to you all. The HELOC portfolio is you know very segmented along the lines that I tried to tease out. We have some you know I think excellent I mean really very, very strongly performing a HELOC’s which are they been the prime bank HELOC. So these are the color Wachovia, Morgan Stanley deals to give you the sense there itself that portfolio which comprises $4.8 billion as a weighted average loan life of 22 months cumulative losses of 0.16 very, very low and we have some very old HELOC’s and pre 2005 they are performing just fine. So if this needle fallings of HELOC those have been on performing well and that is the non-prime tend to be bank shelf type HELOC’s that are underperforming. In relation to the Closed-End Seconds book, it’s again it’s concentrated and we have two or three deals and we highlighted through them for you, and then first Franklin that really do account and absolute math of the reserves. So I think I gave you a statistic that the top five deals across the whole portfolio takes 61% of the reserves. Well I can tell you that the top two are responsible for 43% of the total.

That why I referred you to 80%.

Yeah, so we are very focused, very disturbing deals. Obliviously, we are active on those deals they are, let’s put it honestly they are very surprisingly poor, I will just leave it at night. In relation to your second question, which was you know, acceleration what was it to do when we will do it and when we wouldn’t we do it? Obviously the math in is we will do it when it’s in our interest to do it. Let’s just be clear what it is. What acceleration does is to make a class of debt payable so it up fronts the debt. It all comes due. What that means is that any debts tranch below that debt doesn’t gets any cash because nothing seeks through the water fall. So it’s face value you think well this is the thing that you should do every time when you get the chance. The difficulty there is all the write that’s about general statement. Really there are two, one is that sometimes it doesn’t get even anything that haven’t already got. So for example, if the OC ratios deteriorate then cash begin as to get cuts off and some time, you don’t get anything extra the cash is already cut off by operation of the OC ratio. At different circumstance is within some deals particularly deals with big synthetic element and sometimes if you accelerate that can have adverse consequences and some of the synthetic elements becomes due. And that becomes due at par and someone wouldn’t in those circumstances want to accelerate the generative the deal because in effects you could be out of pocket in respects of the derivative that might itself be accelerated and that would hurt you. So, yes, we are in a very cognizant of what acceleration and liquidation can do for you. It demands, I will say a real fine legal tooth gum because these transactions are very complicated and candidly there are disagreements at times about how these documents work. We are having a number of discussions right now, but pretend to some disagreement of one status or another and to exactly how they were. Just to give you some numbers we have around, I think its 13 deals I mentioned which have events of default. And I think somewhere else I am going to handle, I’m afraid. I could actually, only its two deals that have been accelerated. I’ll come back; it is different from that, it thinks it’s two.

Okay. That’s a very helpful. Thank you. And just a quick a follow up. There was a to our profits that there were some letters going out on HELOC’s where they were actually producing the credit line and forcing a payout. Would that have any effect on your cash flow and reserving? Is that something that you thought about in your assumptions or not?

I am not sure, I understand the question. I am not familiar what is going on from the banks.

Yeah, the letters going out from the banks that actually not only said you can’t drive down on it anymore but you are, actually we are taking your line down and requiring a payment?

I haven’t heard that, I would have to think that one too, I’m afraid that.

Okay. Later I can follow up with you too and then yesterday assured guarantee issued at press release about somewhat classification on new industry accounting rules and for PDS. Is that anything that affects you or not?

Yes, that’s, as what I mentioned in some of my comments we had with the SEC has an end industry our participants have been discussing with the SEC is a consistent method of financial reporting for the elements of credit default swaps both on the balance sheet and the income statements. So, it’s not relating to fair value calculation its just presentation of the amounts.

Okay.

Also with there press release was trying to give folks heads up that the on the various changes that are going to be apparent in their income statement and balance sheet. From Ambac’s prospective, it’s pretty simple. We have never included credit derivative items as premiums certainly so over the last couple of years. We have always been in a separate line item code other credit enhancement fees and we haven’t had the need to record or haven’t segregated out any specific loss reserved amounts for those in our incomes statement. That wasn’t our financial reporting construct that we followed. So we have a pretty simple situation, as you going to see you are just going to see the other credit enhancement fee revenue line move down and down with the derivative mark. So you will see the same number, but it will be labeled something different a little bit lower in the revenue section of the income statements.

Okay. Thank you so much for all this information.

Just the acceleration point it is to comprising about $3.4 billion in par.

Okay, thanks.

Thank you. Our next question comes from, Darin Arita with Deutsche Bank. Please state your question.

Thank you , just turning to the CDOs at ABS could you talk a little bit about each quarter, we are seeing the rating high grade downwards and what is developing work than your assumption of each quarter. Can you be a little more specific there?

Sure, I am happy to. There are several elements for this, I think you know the big one, you know, and it kind of makes sense both in macroeconomic way, common sense way and also a modeling ways is just the correlation things. So correlations have shot ups so got two things, you got all deals most constituent RMBS transactions are suffering odd ones and also obviously you know within the CDOs that generates a leverage effects. So I think the correlation is pretty helpful. To give you some history on this at inception I think agency correlations were around 15% they are selectively 50 through 80 depending on what the deal is now. So, I think that’s been a major factor and it continues. I think the other factor and I gave you some statistics on this is it just continued right rating migration and obviously the two are related. You got lots immigration all at once that not his correlation. And the final thing I would point to is severity, we’ve got a mortgage market, which clearly is in tremendous disarray and when you hit the sorts of triggers that I talked about in relation to CDOs for sure then liquidation is a factor and unexpectedly with the benefits of a year or two as hindsight but even over the last six months, I think its fair to say that the market has absolutely tanked and therefore the liquidation proceeds are very low and hence severities have increased. So, it’s correlation, it’s rate immigration and it’s severities.

I guess it is fair then to assume that as long as the housing market continues to deteriorate the rating on these scales will move downwards or is there a point where the readings will try to get ahead of the deterioration here?

I think that it’s not that we are trying to announce, the time will tell. I mean we’ve commented before that the math of what’s going on is getting pretty stretched in some circumstances. There was a article out I think yesterday published by a hedge fund which again just did some math similar to that which I believe will coveted a while ago looking at the balance of subprime that’s outstanding that the losses that have been taken so far, the pipeline delinquencies and what might one expect for loss given those pipelines, you have the whole thing up on any kind of prepayment rate and its just getting difficult to hit some of the numbers that have been talked about. So, I think my view is that increasingly more times will perhaps make the math work.

Let me comment on -- try to learn some context which we tried hard to do around here and I think the study many of you’ve seen is bank stocks by Tom Brown and I was quite surprised that you can just even a very knowledgeable group such as on this call and say what percentage of the ‘06 prime do you think have been prepaid, I got estimates like 10% maybe 5% in fact very close to 50% of the original 600 billion and then of the 300 or so million left, I am working from memory you have a 100 mid billion of that that is enough the by the way the 50% repay we have 12 billion in losses and then up the other half that’s still left about 100 billion 60 days passed or more and if you are applying a severe set of assumptions as you can imagine to that delinquent bucket and add it to the 12 billion that’s already been written-off you have 200 billion left that has been servicing quite nicely and on time, put some loss numbers on that. It’s very difficult to get to some of the stress loss assumptions. So, maybe we are seeing the pig and the python, we don’t know. This is a Wachovia thesis. We are not in the prediction business here but this analysis by Tom Brown is very interesting just for the fact base that’s lays out.

All right, that’s helpful and if I’d may ask one more question.

Sure.

I guess assuming the rating agencies provides their stress test models and increase the capital requirements again you know at what point would it be un-economic for Ambac to raise capitals to preserve it’s AAA ratings?

Well, Callen I will take a shot at that. I think the business models that we run internally given our internal capital generation and given the market developments with the amount of capacity reduced in the pricing that’s currently available. The idea of getting back to market and bridging this confidence gap is in fact from a business point of view very attractive one. The question is how do you do that as quickly as possible and that’s pretty much where we spend a lot of our time, nobody here likes these first quarter loss numbers, we thought there would be a disappointment, it was a disappointment to us when we finally came up with them and the early part of April. We’d like the hope that maybe we’ve seen the bottom of this that’s not a forward-looking statement no matter what it sounds like. And there is a good business out there because there is a lot of injured capacity and we are looking at every opportunity to go back. So, we think by the end of the year, if we use the stress models in place now we are well in excess of their AAA target and if they were to redo that which they have a right to do, we could find ourselves conceivably in a deficit position such as we were right after our capital raise and it just means that generating the capital we do internally it would be a little more time before we cover that. I don’t know how helpful that is but I don’t think we’re -- there were too many variables here to say that we were anything close to uneconomic in that respect.

All right, thank you.

Thank you. Our next question comes from Avery Son with Ivory Capital. Please state your question.

In terms of what’s happened and where does it go from here you know probably a good thing to do is to look at the chart on page 31 and you get a pretty good sense of what’s happened in the last few months. Basically losses have taken off in that transaction. Sometimes you get perplexing movements, I will draw your attention to one. If you look at the first Franklin deal which is also in the charts that I presented. You will see four months ago I think it was a kind of marked flattening in delinquencies, that proved to be a false dorm because although delinquencies that trajectory there has flattened actually losses have continued to escalate. So, you know the data is difficult. You get very odd data. To give you a sense of how odd the data is the remix is beginning to come in some what late because sometimes people don’t believe the detour that’s been presented and when it send it back and say whether it can’t be right. But in fact unfortunately some of them is right and then on that a huge. Where can it go? Again, look at page 31 and I admit this is the extreme example and a criticism it might be well look at the very sharp diminution in monthly realized loss that is being projected here through the roll right methodology. And it’s true. It’s a fairly sharp diminution from where it has to be because if it didn’t, you end up with more than a 100 percents of collateral loss which doesn’t make any sense either. So, I think further discussion that Mike just had in relation for sub-prime and what’s outstanding and what does that imply about future default and severity rights to get to the given collateral loss, we are seeing some of the same things certainly in relation to almost dressed transactions, you know how bad can it get. 81 people and 100 walking away sounds pretty bad to me.

Okay. And then thanks for that answer. Given that dynamic if we kind of looked forward into the next few quarters, I mean what’s showed the right run rate loss the -- or provision be on a quarterly basis assuming that the charge that you guys have forecast on page 31 are kind of accurate going forward?

Well if the forecast was accurate going forward and let’s face it, it may could be plus it could be minus and there would be no impact really I mean that’s what we are setting up. So, the only thing that would happen would be some teething, but some what we are trying to do you know getting back to I think the first question is you know put it out there in terms of that’s the expectations through life. I think where you know moving aside from this one specific case know and this gets into the methodology that we use and its just important that everybody captures this I think that you know we use this probable and estimable notion for posting these impairments or reserves and the probable demarcation is investment grade. By definition therefore you know other things being equal you are closer to a reserve if your portfolio degrades and gets closer to that BBB demarcation line if you will, and that’s happened, I think you know I gave some statistics on high the grade deals, we think we’ve beaten them up pretty heavily and the future is unknowable but yes we see some degradation that is I was trying to point out.

Yeah just going to point out to and maybe David, you can discuss the kind of the breakout of some of the HELOC portfolio being that big portion of the portfolio, It is related to a large bank transactions versus short transactions.

Yeah, I mean I think that’s what.

Even I think that’s the demarcation in the portfolio that David talked about where you have the bank, the non-bank in certain vintages and then you have older vintage transactions and obviously most of this stress coming from the recent vintages and the investment bank shelf transactions.

Yeah, very striking, you know, has various hypothesis about this, and we are investigating this hypothesis, but it is very striking how concentrated, very concentrated some of before performers and all sorts of obvious questions, I mean, you know, I mentioned that we have diagnostic and forensic people working on some of these deals, you know, we are beginning to see stuff back from that, you know, the diagnostic is basically running takes looking at delinquencies and trying to figure out given what you now know, what you knew then, would you have expected that delinquency are not and if the answer is not, well that’s interesting, so in other words, you know, you have incredibly low FICO within a pool and it’s delinquent, well maybe you’ve expected that but if it’s incredibly high and the LTV was incredibly low that maybe you wouldn’t expect that. So that what you do is to take an adverse samples so you know run the tape through the program taken adverse sample and looking for the suspicious one and that’s what you do is to go and look at the files. That’s a very difficult loan process, but you look at the files, you like at the transcripts of servicing records and you see, what you see. And all I will say is that some pretty amazing stuff to see. So you know, very concentrated adverse exposures that’s really the message here.

Let me add one thing Callen, we are trying in terms of rebuilding confidence in the coming months to - one step in that process is to be is absolutely transparent as legally possible and none other things, we are going to try to provide you with tools on our website, so that you in trying to project the future can incorporate, whichever variables on ratings and things like that that you would wish to do and out of this tool will come -- this calculation will come to loss that would result from those assumptions. So, I don’t know if anything on hand that we can provide in terms of information that we are not endeavoring to do in the coming weeks.

Got it. Thanks.

Thank you. Our next question comes from Scott Frost with HSBC. Please state your question.

Thanks. Just a couple of questions. Could you go over again how much business you have written since your downgrade by Fitch and I guess mid March. And also for your credit facilities, has the bank at anytime stopped you from borrowing on the facility?

The answer on the second part is no. On the Fitch downgrade for us came back in January, in fact, if I remember it was January 16th that was about a day after I got here.

Okay.

Give us just a couple of minutes before the end of the call, we will come back and tell you what the business volume has been since that particular date.

Okay. Thank you.

Yeah just a little bit more on the credit facility, the credit facility we never joined on, we have had discussions with the banks to talk about the minimum net asset test that I mentioned in my comments. The liquidity in the financial guarantee business for the reasons that we mentioned relating to guarantees that principal and interest and the fact that we’re setting lifetime reserves over the entire transaction, the cash outlay for those items that we have either cash reserves or impairment for CDOs is relatively modest compared to the total size of the reserve that was posted at the end of March. So, from a liquidity perspective, we have a very high quality investment portfolio and good cash flow. So, there’s never been a need. We don’t see it at least apparently in the investment agreement portfolio, we have a portfolio of asset backed securities. Clearly the market for those securities has been under stress and the values indicate that -- in that portfolio, however, we do have identified securities that we think will be more liquid and we have been turning -- we have a fairly sizable cash position in our portfolio about 300 million, so that provides what we think is the appropriate liquidity going into considering many potential drawls that we would consider in our guaranteed investment contract business.

Okay, thanks. I’m sorry, I misspoke. I mean since your rating was taken off Watch and double AA by Fitch, that’s what happened in mid month right?

You are talking about since capital raise I think?

Right. Yeah, okay.

But, I think you had a business question and that the business obviously has slow down dramatically. We provide some of the numbers in our press release. Primarily the production came in the quarter from transactions that we had committed to prior to the start of the quarter. We did see some uptick in secondary market transactions and on a limited basis some in the public finance side, some direct transactions. But, the balance of the production is really coming from transactions that been in the pipeline and also from some of our conduit transactions where we book production numbers on a quarterly basis due to the nature of those transactions.

But, I know what’s your question is and before the call is over I will get it; I am in the process of getting it done.

Great, thank you.

Thank you. Our next question comes from Ken Zuckerberg with Fontana Capital. Please state your question.

Yes, good morning, actually afternoon. I have a question for David and then a question for Michael. David, you provided specificity today, I just wondered whether or not you could line up the HELOC and the CDS exposures with a little more granularity. Meaning, I know you mentioned the Bear and the Franklin and that was a certain amount, you also mentioned Wachovia and Morgan Stanley. Could you provide any additional specificity even if it’s just in the context of bank versus broker versus other origination?

Sure. And, maybe we’ll try and put this out in the website, we would be happy to do that. So, I'll just give you some numbers, I will start off with the bank deals, 4.8 billion, 22 months weighted average life, weighted average cumulative loss 0.16, then the next segment is essentially the shelf deals and it’s 4.5 billion, 3 points of loss, 28 months weighted average life line life and then the final segment is 2 billion or 2.1 billion I guess, cumulative loss about 1.37 on a weighted basis again, 44 months weighted average life.

What's the full volume on NBAs in '08?

So you can see that the segments perform very differently.

Great. And just in terms of remaining exposures that you haven’t posted just the notional amounts or those mainly broker originated loans or do they come from more traditional bank channels?

Great, great. And thanks for the helpful color. Moving on to Michael, hi Michael. With respect to your ability to I guess subrogate maybe the word, is there call back to some of the folks that provided you with these deals in the event your diagnostics find out their worry, their misstated loan to values or misstated FICO scores?

There are legal remedies if you find that you have been injured and that there have been false reps and warranties. As a statement, David is working on this, I will ask him to comment. Let me just tell you that the policy the industry and certainly of Ambac as far as policyholders are concerned is to protect them at all cost that’s the franchise is all about. So, in a case like that I can tell you the CEO that even if we found ourselves injured somehow, we’re never going to be seen in the market place to failed to make the payments, there are transactions, however, where you can -- there can be failures on the other side to perform or there can be false representations and in that case you take normal steps. Did you want to say something?

Yeah, I will just get a little bit more, more color on the topic and really the base campus, there are kind of two ways of going about this, in sense of them seeking reparations from fraudulent deals. One is the loan by loan. So this is the macro, well, the LTV was supposed to be exit clearly one. It was supposed to be unoccupied, it clearly wasn’t, and that’s it’s empirical. It’s obviously difficult and time consuming. It’s factorized. That’s what you do and I think that a lot of folks would be doing that. I noticed there was an article in the journal yesterday in relation to some transactions. The other theory is kind of grand theory and going back through time here at Ambac, we have had some experience of this in relation to not loan by loan but really kind of more grand scale fraudulent inducement. And also the trick is to not go down one root or another and not preclude one root or the other, but to kind of deceive both and take a choice at some future point. So, two avenues, loan by loan or a grand theory and you kind of need to work at both and take a choice later down the track.

Thanks very much for the answers.

Thank you. Our next question comes from Eleanor Chan with Orilles Capital. Please state your questions.

Hi. Thanks for taking my call. I just have a question about what you guys said about the rating agency capital cushion. I think I heard you guys said that you have cushion with respect to S&P of about 700 million and not much has been mentioned about Moody’s. So I’m just wondering what the corresponding cushion do you have with respect to Moody’s minimum AAA ratio? And also, you also mentioned that you expect to exceed Moody’s target AAA ratio by the second quarter and I’m just wondering how do you guys plan on achieving that?

Let me give you some flavor on a few numbers on that. Let’s say Moody’s first. On February 15, Moody’s under their new and more conservative model announced we were 2 billion short. We raised 1.5 billion of that and took about 1.3 billion down to the insurance company. So that left us about 700 million. Short internally through mainly through run off, we generate, we estimated at that time about 1.2 billion a year in the event and by the way the Moody’s model was as of year-end ’07, in the event and in first quarter we’ve generated about 390, let’s call it 400 in rough terms. So as we speak, we would be in deficit against their target, not against their minimum, but against Moody’s target of roughly 300. We know we have some heavy economic capital either as our users running off in the second quarter at a higher rate that we had in the first quarter. So, I’m not going to commit to this, but my sense is that we will generate well north of 400 in the second quarter by the end of June and then that would put us over the top as far as Moody’s is concerned and would put us well over $1 billion of cushion against the S&P target. So, by that time, we should be fairly in a very comfortable position. And provided we are very judicious and disciplined in underwriting, I would anticipate by the end of the year to be well in excess with S&P more than 1 billion with Moody’s probably in the neighborhood of 500 or 600 million surplus by the end of the year.

Okay. I have another question. It seems like the Alt-A collateral losses that you guys are assuming of 20 to 25% that seems like very high compared to what some shelf side analysts have been expecting on Alt-A collateral. Can you please explain like kind of elaborate a little bit on why is that your Alt-A or mid time as what you call it, deals are so much worse than the I guess the representative Alt-A deal out there?

Historically, losses one or two, you feel fine about that. There isn’t that much excess spread again because the borrower is sensibly a decent borrower and doesn’t want to take out an expensive loan. So what you have got is a structure that you may be more than some other deals depends upon getting the borrower credit life because there isn't that much more protection. So in the very early days of a transaction full taxes of 90% odd, you see these slots of sums in for closure in REO, you might hope it’s a major pig in a python, that’s coming out first, or you got a problem and we are taking adjustments in the middle of that essentially, and doing the numbers along the lines that we discussed running out in text runs and the like and you get to around the source of collateral loss that we put there. I think that clearly this portfolio is going to be a focus of remediation efforts because it does stretch credulity. I will admit that you have these sorts of borrowers who traditionally has performed pretty down well, suddenly performing incredibly poorly, and it's very very spotty. So we have got some very poor deals and we have got some very good deals. So, deals originated within weeks of each other, you can have some with apparently very very similar characteristics showing in the foreclosure bucket less than 1% as against some with 14%. Clearly strange things happen. So that’s the background. We think we are giving it a bit of hit. The reasons, the 20, 25 number is not representative of our portfolio, we have lots of deals that are performing just fine in terms of adverse characteristics but we have one or two or three or four, in fact, half of those are my guess, that are performing very poorly and we’ve taken what we believe to be the correct action, although we will see very aggressively chasing these deals.

Thank you.

Let me out break for one second, I was asked about business production and Bob Shoback would like to provide a few numbers and some flavor on that point, he’ll just take a second.

Yeah, the question was related to production since the capital raise, and what we’ve closed in terms of production since then in this EGT is about $12 million and a number of transactions has been in the new issue negotiated market, a few more in the new issue competitive, we did market and a fair amount in the secondary markets, but we have seen most activity in the secondary markets recently. In addition to that, there is a number of commitments that are outstanding for deals that have been avoided, where bonds have been issued or but they have not yet closed, so the bottom line is about 12 million in CEP since the close of the capital raise.

Thank you. Our next question comes from Joseph Femoreno with Piper Jaffray. Please state your question.

Thank you, could you talk about some of the assumptions used for your estimate and how much capital is created in the run off?

Sure, I can do that. It's Sean Leonard. What we do is we take an estimate of the -- we look at the portfolio and we look at the payment schedules underlying the obligations of the portfolio and schedule those out a time and look how the theoretical losses would fall as far falls away, so that’s on the loss side compared with the claims paying, resource side which has element of investment earnings payments of the expenses and is kind of cycling of the - of the premium from one bucket of claims paying resources to - to surplus but variable to kind of look at that project that out, its kind of assuming no new business and look how claims paying resources moves every time versus the movement of theoretical loss and in that it's effectively the calculation that the rating agencies undertake to determine levels of capital, AAA levels of capital. So, that’s what we do, the pieces that are difficult to project and we given out and what we think is pretty conservative numbers of approximately 100 million for the quarter of capital that’s freed up through just portfolio run off and it’s such as difficult to predicate is the refundings, if the refunding levels and transactions that are either structured finance refunded away, prepayments speeds in the light, that helps to increase the number and during the first quarter we saw in my comments we mentioned that the calculations, our estimates is about 390 million of capital generation. What we are seeing in the second quarter is kind of acceleration of refundings particularly in certain assets classes, but we are seeing in the public finance side particularly in healthcare, so we could see a fairly sizable - we could see a fairly sizable reduction and part in that healthcare portfolio, and we were currently looking at since some expectations perhaps in the quarter of a run off near -- near $5 billion in healthcare alone, so healthcare generally due to the nature and the risk, which we have been very successful in underwriting but nonetheless rating agencies take a course view of that particular asset class due to the potential severity due to the nature of those institutions, so I think that will add to - and I think I may have missed spoke, 100 per month is our general base assumption and I think I may just said interested 100 per quarter but 100 per month, so 300 per quarter.

How much capital you’re expecting is freed up?

Yes, as a conservative number and in the first quarter we freed up and look like about 390 million, and we expect at least in the second quarter you know with the - it all depends on the re refundings but its starting off at a quarter that its looking like the - the part is coming down faster than it did in the first quarter in certain asset classes, where which would be - which would be positive from a from a loss modeling prospective.

Thank you. And this is probably for David. Can you go into a little more detail in terms of the disagreements that you mentioned in terms of when innovative people takes place in some of the cash flows get diverted to see your charges.

Yeah, I don’t have to answer specific obviously but you know I guess the deals are very, very complicated and they have you know interlocking documents of one source or another and you get to you know discussions shall we say in relation to have some of the documents into relates and even in extraordinary cases about the precise nature of notification. If some of these, which you all know is that x, y and z is going to happen and then there are lots of e-mails and conversations about it. Then those that constitute note, those that doesn’t constitute note, so on so forth. Clearly we have entered into these deals, they are all synthetic and what they rely upon contractually is an obligation on behalf of our counterparty to perform in a manner in terms of giving instructions to the appropriate trustee in respect of the deal and the tranches that we insure and so that’s just a slight difference, a slight nuance from a normal insured transaction where obviously we would be in direct contact with the trustee. So again, there can be just a little bit of friction there and I don’t want to exaggerate the issues here. I think they really are about complexity and also candidly about the source of pressures that these sectors are under. There is no doubt, but global financing institutions including us obviously somewhat regret, some of the transactions that we are in and others are in and some people take a very literal line perhaps in relation to their obligation. Clearly those are things we are aware of and thoughtful about and we will take them forward as needs be.

Alright, thank you.

Thank you. (Operator Instructions). Our next question comes from Tim Bond with J.P. Morgan. Please state your question.

Yeah, hi guys. I have a couple of questions. First would you -- actually two parts of this. Could you step into the market and actually by HELOCs or CDO deals with your insurance investment portfolio?

I mean I would say the answer is yes, we could. I think that the rating agencies might not be terribly happy with that and that would stop us. Callen speaking purely personal opinion, it might turn out a year for not to be a very smart investment, but we shall see but the direct answer could we and is the answer is yes, would we is something else.

Yeah, the issues from a financial perspective as it relates to capital and capital and the rating agencies models particularly is that transactions when they go to a rated BBB were lower receive a 100% capital charge under certain rating agency capital models. That would make it difficult for us to take risks to transactions that one could down grade into that bucket, where two exist already in that bucket. So that would be a capital user, that would be difficult one. The other point I would make is just generally liquidity of those have we generally have a very extremely liquid investment portfolio on the financial guarantee sides, of where I was see you would be and that would be something that would be of concerned make transaction under large in that type of asset class.

Its just passing that would be just from the risk perspective you know we talk a little bit about that correlation and how that sitting out with so many clearly whether the risk is on the insured side or the investment side its all risk and you know arguably we have got enough RMBS risks, so from correlation and overall enterprise risk perspective that's something that obviously we would want to be thoughtful about also.

Yeah I was thinking also in context of you know actually decreasing your exposure if you are not purchasing from the market. Your collateral loss expectations to form a 80% you are able to purchase for significantly lower than that you know you could opportunistically lower your net exposure there, and then you know, if the market does recover you will some much upside but. Our second question I had was you know in regards to the statutory surplus and then you mentioned the liquidity was strong but I guess my concern is if reserves continue at this level the statutory surplus becomes important the fact that their regulators can step in and actually take control. And when will get your reviews on that?

Any further question, sir. Okay. Our next question comes from Steven Lesco with Credit Suisse. Please state your question.

Hi, good afternoon. First on the interest of the last question about how much you can dividend up from the operating company, isn’t there also a statutory net income restriction with dividend, minimum of 10% report neither is on or three years net income to the previous dividend?

Yeah. What the test is it's the lesser of 10% of surplus to policyholders at the end of the year, so in this case December 31, 2007. So it's a lesser of that or and this is two-part test either the income from the prior year or the aggregate income for three years. So in our case the limiting can constraint for us is for us at 10% for surplus to policy holders and in that limiting can strain is at $331.6 million.

Great. What’s the year-to-date that straight that income?

Actually I don’t have that number in front of me hold on a second, the statutory net income is approximately for the first quarter is a loss of about $850 million and that’s due to the reserves taken for the additional reserves CO, where transactions and the high grades that we posted and reported in our press release. And I assume we have a number of questions on the web, I want to get through the queue of people here but I, we are going to answer everyone of those questions either at this conference or by e-mail all the questions, I’ll answer one right now and it is are you going to go bankrupt and the answer is no. And we’ll answer that one as well but there are number of others, I don’t want to be discourteous and ignore them lets continue with those in the queue here.

Okay. And just question to the David regarding the CDO disclosure. Could you give any color on the pooled ABS of less than 25%, MBS bucket of like 2.8 billion. I know MBIA they didn’t disclose what was in there and it turned out to be 20% ABS, 80% CDOs?

Yeah, you’re cutting out just a little bit. I think you are asking about the non-ABS CDO portfolio.

For the pooled ABS of less than 25% MBS?

Yes, that’s right. And so, I think in the appendix to the slides that we presented there is some pretty good material on there. So, page 43 for example splits up the book both by bond kind, predominantly high yield CLO is about 65% and by rating it's 70% odd, 74% AAA. We feel pretty good about our book. I think that the ratings indicate that corporate default rates can escalate way north of where they are now. So, if corporate master fitted default rates or any kind of reasonable severity jumps up to 10% that wouldn’t cause as great concern. I think that we have about 8.9% of that book is in market value CDOs clearly for all the obvious reasons that’s been a real focus for us. That portfolio helps, really kind of dumb on its face to do so, yes, at times different triggers have been hit and one or two things has happened without exception. Either equity has been injected or portfolio sales and de-leveraging has occurred. So, there is been some stress that the candidate you know, the idea of those deals is to be South collecting in terms of the measures with pre-built into them. So now, we are feeling pretty good we got to other focus on I am simply focused on these we are got about 4% of the Trust deals so we just see the original banks raised in insurers and you know you reach the German every day and you look at some, you know, the they extent of RMBS, this is whole line not security, RMBS holdings as percentage of assets and you know the kindly I think this is something that will be perhaps the feature of the landscape over the next six months I’m moving the way from RMBS security concerns to move it, its looking at loans which also is more difficult to value and you know you look at regional banks and you worry about that segment and the regional concentration perhaps those banks might have in lending books. So be very focused on that and we are you know, conducting a review of that time book as we speak but the initial runs seems to be yes it looks fine. So I guess that’s a long way of answering a question that you know high yield book can take a heck of HELOC, the market value book is performing as it should I mean clearly its you know things are happen that, that the deals are performed further you know plan is that work the drops I think you know I personally focused on that’s far they look at okay. So now we are not you know experiencing you know undue concerns certainty cooperative developed writes can escalate significantly from where they are now and you know I think they are probably will but hopefully not to levels that unduly trouble us.

Okay. Great, thank you.

Thank you.

Our next question comes from Ben Kedem with Kedem Capital Corporation. Please state your question.

Hi, today in the presentation in response to a question you said the cash flow on our annual basis runs around a billion 5 to billion 6. And also when you floated the equity offering you mentioned that the cash flow of the company runs about a billion 2, so obviously you indicated an improvement. My question is assuming no way capital a mark-to-market changes assuming to big assumption off course, but assuming no changes in mark downs a all mark up in case from operation are you a profitable or is that others they business look strictly operationally?

Ben I want to clarify I think you may be referring to the accretion of capital internally which is derived from a run off of the business which of course absorbs capital and from the earnings from our investment portfolio in just to clarify my answer and then I will go on and answer you. The rate of run off in the first quarter actually of Healthcare and things like that absorb a lot of capital exceeded our projections on the set of billion two and we know on the second quarter we are going to have an even larger run off of those capital expensive transactions and so I have moved up by un projection of capital increase and adding back from a million, a billion two rather 2.5 billion last year. To the answer of your question, yes, in the absence of deterioration in the portfolio almost exclusively on the mortgage side of the portfolio we had a profitable business. Most of the profit in fact as we pointed are really embedded in the balance sheet. So, we are talking about business here that generates earnings of $750 million to $800 million a year after tax. And that would include no incremental business so, we as said several times and it’s of some interest for analytical purposes it doesn’t change economic reality terribly much but the number of trouble transactions in a very a large book are remarkably few. And if one could set those aside or snip them out, add back as a good viable profitable business, yes.

And you also made a comment that the portfolio rode down about 17% so, the evaluation is not 30% of phase. What portion of the portfolio is that, that you mentioned the average is around 30% of that?

I think what you are referring to is the proportion of the CDO square deals that we have preserved against and just coming through the, the that is try and find that. I think that’s what you are referring to so, that’s an intent that we have taken impairment rather than reserve because it’s quite a derivative against.

Yes, yes, yes, I think, I think the Callen sneaking you in here again. Our CDO-squares had been the most troubled part in the most visible certainly high profile. And I think what we said was of that phase value on the CDO squares we have know reserved an excess 17% of that. There were two A CDO deals which have both been fully reserved, they were 500 each and then there is another transaction of a billion 4 we called the peaceful transaction with one counter party and we have ensured but about 60% so if you take enter CDO square portfolio it is pretty much largely behind us I guess.

You are talking about total phase of about 2.4 billion of which is about average 70% reserve?

That is correct.

Okay. Thank you very much.

You are welcome, sir. Thank you. Our next question comes from Steve Lund with Morgan Stanley. Please state your question.

Hi. It’s Sy Lund from Morgan Stanley, is that question that comments you made about Moody’s. You said that you have to hit the Moody target in the second quarter. I mean those are targets of Moody’s as of March and obviously your outlook catching since March. Are you confident that the targets the rating agencies have won’t change in light of what happened in the market and also in the context of your expectations for the year?

You know what always has to be careful trying to speak for someone else tonight. I am obliged to repeat that but when they arrived that the numbers they did using the models that they implemented after the mortgage note down begin. They incorporated some very, very, conservative assumptions. And what were seen is that the assumptions that they incorporated up pretty much what we have seen here. They anticipated stress so I can’t guarantee that they won’t come out in sales as well now we are going to changed the goal post, but the purposes we’ve set before of these conservatives assumptions more applicant times 13% above that was so the in the event that depends on pull the way they are, they wouldn’t have to do that. Which I can give a guarantee, I can only express some confidence that our capital passion even given the unhappy results we reported is adequate and getting more adequate against their targets. Excuse me I’m sorry, I would not be surprised to see them and come to some comment at some point in connection with somebody actually results being reported to first quarter not just for us but for others, as they watch the developments of market place, but the prospect of an immediate down grade of my opinion is not high, certainly not high

Can you quickly follow up as far as the operating company, you said you are taking a divided out of the, was concerned operating company, I mean, if I look at the holding company cash I can go forward and tell the second half of 2009 and given the capital position you have right now, why are you actually taking a dividend out of 2008?

Yeah, thank you for all the detail.

Thank you.

Our next question comes from Jo Oft with Harvard Management. Please state your question.

I would just like to ask a question about the GIC business in relation to ABS CDOs given that there are a number of ABS CDO’s that are the process of liquidation or that they have already liquidate, I would like to see if you guys could tell us how much exposure you guys have to take business within ABS CDOs?

. :

Thank you.

Thank you, our next question comes from Scott Frost with HSBC. Please state your question.

Hey, thanks for the follow up on the business written, you said you had 12 million since the capital raise, is that include closed and watching circle?

No, that includes just what we’ve closed so far.

You know, I think it’s a similar number.

Okay.

But, I don’t want to go into detail.

Okay and did you say that this represents mostly secondary rewraps of mini bonds or is there any sort of new business?

There are couple of new trans - new issues, new market transactions on the municipal both negotiated transactions as well as those that are competitively bid. The competitively bid number is much, much larger. So, what we’ve done a couple of negotiate deals, one week, a couple of weeks ago for example we closed six competitively bid transactions. On the secondary side, those are for smaller deals and not for the entire deals that for single maturity or pieces of them and that represents a large number of transactions with a relatively small value.

I’m sorry; you said that three rewraps were small sized?

Yeah, they are for - generally they are for single maturities within the transaction and one of the time, not the entire transaction and most of them are not rewraps of the transactions. We have got the quest to rewrap issues that have been insured by other monolines, but there is also secondary market business of transactions between uninsured in the primary market.

Okay, okay, and just giving a sort of for a scale, could you give us an idea of, what it wasn’t for a couple of period last year or is that?

Actually from a secondary market perspective since in previous year’s periods the penetration rate for insurance was much higher in the primary market. We at Ambac had done very little in the secondary markets so, our prediction in the secondary market actually is relatively high compared to what its been in past first quarters for example.

But your total business written?

Is really way down, but total business is way down, you know the insured penetration rate is running about 0.5% of the level but its been at in previous years and volume is down significantly as well particularly in the first two months.

It is why at last, last point you let it to the capital ratio on page 27, that’s not exactly now I guess to like an RBC ratio that we would normally see on a statutory statement of the non-model like, could you sort of just give us some color or might just what, what sort of levels you have to hit for I guess company action and authorized control level capital or does that apply to you here?

I think, I think these are issues I am not familiar with Bank RBC.

Insurance RBC?

However on insurance RBC calculations specifically these are illustrated purposes to show kind of principle and interest leverage against statutory type measures. So, these are not regulatory ratios per say we have deleted by you know, surplus levels regulated by single risks based upon qualify statutory capital levels or --

Right, let me think other way, what you got to qualify to that for a capital numbers that you are total adjusted capital. What is your minimum capital requirement under statue?

Well, we would need to have, I am not sure, I am not sure understand that question that you means the way we are regulated is fit from a surplus perspective, for a surplus perspective obviously did you know, you would look to a positive surplus position that contingency reserve as kind of the way to set aside surplus funds forward, potential loses so, that grows overtime.

Okay, right.

Yes, when you have other thing that was not an RBC type calculation so, the contingency reserve had an element of that because they are trying to take natures of exposures and build that up, and obviously that’s a draw after the capital base, so that’s the part of the regulatory scheme. There is also single risk limits, aggregate risk limits, there is with these minimum numbers, it think it’s you know $75 million up capital to be I think California might had some regulations so I can’t quote them up top of my head but around those similar type numbers, in a minimum levels of capital and then you obviously have the various capital models that we look to an adhere to maintain AAA capital level.

Right, okay. Thank you.

Thank you. I will now turn the conference back over management to take some written questions.

Yeah, let me answer let me answer Mr. Denning's question and it if reads even if Ambac has reserves necessary to make it through the current market dislocations as not the bonds that you wrap, the brand that you have irrevocably damaged? How can you win back market share when conditions normalize? I will give you an answer that my colleagues here will not be happy with because there is a temptation to preach from the amount here. But the truth is, one does not know the answer to that. But the facts behind that are that we have been all over the country talking to all of the various constituencies. And while I understand people say what you might want them to hear, you might hear at times there is a need for the service, there is a need for the name, there is a recognition of the name, and I feel a sense of underlying support. I do believe it will take a quarter or two of significantly attenuated losses before this process of an inch a day getting back into the market and having our name accepted as a worthy underwriter is going to work, we’ve got to put a lot of doubts to rest. On the other hand, I opened up with a comment that I feel strongly about and that is that we are being tested and the value of the product is being demonstrated. We think we are managing this place in a way that it can withstand this kind of stress and I personally believe in a year from now that’s how we will look at it as having come through the worst of times intact, but we do have a confidence that we have to rebuild, that’s a very hard job, it’s…

Thank you, sir. This concludes today teleconference. You may disconnect your lines at this time. Thank you all for your participation.