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By Matt Phillips
All the excitement surrounding Ambac — volume is actually outpacing the Citigroup, which is almost always atop the most-active list — offers us an opportunity to actually go back and see who made bets on a stock that has pretty much been a train wreck for the last few years.
We already told you about the crew over at OZ Management, who may stand to pocket a nice bit of scratch on the recent run-up in Ambac shares. Sure, everybody loves spotlighting a great call on a stock. What could be better, right?
How about spotlighting a terrible call! Yes, perhaps nothing is so satisfying as seeing a Wall Streeter get something absolutely, completely, gobsmackingly incorrect. And unfortunately, the folks over at Third Avenue Management fall under that category when it comes to shares of Ambac.
Of course, it didn’t start out that way. It started out — as so many things do — with a glimmer of opportunity. It was late 2007. Amid signs of the developing credit crisis, Ambac shares plummeted from the low $70s in late September to under $30 as investors worried about the insurance the firm was on the hook for related to subprime securities.
Third Avenue — founded by famed value investor Martin Whitman — swooped in during the fourth quarter of 2007, adding some 2.2 million shares of the company. By Dec. 31, Third Avenue owned some 2.7 million Ambac shares, in a stake it valued at $69.6 million. For a while, it looked like things had stabilized at Ambac. Then during the first quarter of 2008, Ambac again nosedived, falling 77%, from about $25 to under $6. Third Avenue stood its ground on the bets it was making on bond insures, Reuters reported on March 3, 2008:
There is “much profit to be made in” the bond insurers, whether the companies continue as going concerns or write no new policies and sell off their existing business, in part or in whole, Whitman said in a letter to fund shareholders.
As Ambac plummeted during the first quarter, Third Avenue bought some 7.5 million additional shares, bringing its total hoard to 10.2 million, which it valued $58.9 million at the end of the quarter. During the second quarter of 2008, Ambac tumbled 46% to under $2. Third Avenue bought yet again, adding 18.3 million shares, bringing its total to 28.6 million, a stake valued at $38.3 million as of June 30, 2008.
And so it went. From time to time, as Ambac prices have perked up Third Avenue has sold a bit, but as of Dec. 31, 2009, Third Avenue still owned some 24 million Ambac shares, roughly 8.3% of the common shares outstanding. The stake was valued at $19.8 million.
It should be noted that that Third Avenue isn’t the only fund to get pulled into the Sarlacc Pit of value destruction that Ambac represented. For instance, funds from Davis Advisors also plowed money into Ambac as its price collapsed.
Oh, and we did put in a call to Third Avenue to see if they have anything to say about Ambac. We haven’t heard back yet.
Update: Spokesfolks from Third Avenue sent over this response: “In the Third Avenue Value Fund shareholder letter [for the period ended Jan. 31, 2010, co-portfolio manager] Ian Lapey discloses that during the quarter the fund sold 16,752,171 shares of Ambac Financial Group, Inc. Subsequent to our fiscal quarter end, we eliminated the position.”
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