MBIA, Ambac advance as market may see them 'too big to fail;' Audible.com skyrockets on acquisition

By Paul A. Harris

St. Louis, Jan. 31 - In spite of a conspicuous pileup of bad news in the monolines space, its two marquee names saw their shares trade up on Thursday.

One analyst told Prospect News that in the face of withering attacks by hedge fund investor William Ackman on Ambac Financial Group, Inc. and MBIA Corp., the market may be evolving a perception that the bond insurers are "too big to fail."

Ambac (NYSE: ABK) shares rose 6.82% during the Thursday, up $0.74 to close at $11.59, as Standard & Poor's affirmed Ambac's AAA ratings.

Meanwhile, despite reporting a $2.3 billion loss for the fourth quarter of 2007 and being placed on CreditWatch with negative implications by S&P, MBIA's (NYSE: MBI) shares rose slightly more than 11%, or $1.54 per share, to close at $15.50, on Thursday.

"I think MBIA and Ambac fall into the 'too large to fail' category, and now that earnings are out I am thinking a bailout happens ASAP," an analyst told Prospect News.

This source added that Pershing Square Capital's Bill Ackman, who has shorted the two monolines' shares, "is just trying to get these stocks to fail so he has a huge gain."

Ackman estimates that, due to losses in the value of mortgage-related securities they guaranteed, MBIA could undergo losses totaling $12.6 billion and Ambac could lose $11.6 billion, and the companies could soon become insolvent.

Another market source commented that Ackman's crusade against the monolines is one of the most bizarre episodes she has witnessed in the capital markets. This source added that Ackman's having pledged to charity any proceeds garnered from his short positions lends a whiff of melodrama to the affair.

Late Thursday Pershing Square Capital Management announced that it has made publicly available a letter it sent to state and federal regulatory authorities on Wednesday.

The letter introduces a new "Open Source" research project which includes a financial model that details the CDO and related exposures of both MBIA and Ambac.

The Open Source Model can be customized to allow users to estimate MBIA's and Ambac's losses using their own assumptions, according to a press release from Pershing Square.

Scottish Re: Something in the works

The analyst also noted that global life reinsurance specialist Scottish Re Group Ltd. saw its share prices rise despite the fact that Moody's changed its outlook on Scottish Re's debt ratings to negative from stable, on Thursday, citing the company's substantial subprime exposure.

Scottish Re (NYSE: SCT) shares were up 8.49%, or $0.09, closing the day at $1.15.

The analyst noted that on Jan. 10 Lehman Brothers Holdings Inc. increased its stake in Scottish to 13.06%.

Further, the analyst noted, trailing the ratings news Scottish Re's shares dropped to as low as $0.86 per share before bouncing back in the afternoon.

"They sold off then came right back," the source commented. "I smell something in the works."

Amazon aquiring Audible

Shares of Audible.com Inc. (NASDAQ: ADBL) gained 22.4%, up $2.09 to close at $11.42 after Amazon.com, Inc. (NASDAQ: AMZN) announced that it has reached an agreement to acquire Audible for $11.50 per share, or approximately $300 million, which includes Audible.com's cash and short-term investments at closing.

Audible.com is an online provider of digital spoken word audio content, specializing in digital audio editions of books, newspapers and magazines, television and radio programs and original programming.

"Audible.com offers the best customer experience, the widest content selection and the broadest device compatibility in the industry," said Steve Kessel, Amazon.com's senior vice president for worldwide digital media said in a press statement.

"Working together, we can introduce more innovations and bring this format to an even wider audience."

Amazon.com (NASDAQ: AMZN) traded up 4.7%, gaining $3.49 to close at 77.70, as the company announced that net sales increased 42% to $5.67 billion in the fourth quarter, compared with $3.99 billion in fourth quarter 2006.

Net income increased 112% to $207 million in the fourth quarter, or $0.48 per diluted share, compared with net income of $98 million, or $0.23 per diluted share, in fourth quarter 2006.

Southwest Air won't rule out merger

Elsewhere on Thursday shares of Southwest Airlines Co. (NYSE: LUV) closed lower, down $0.17, or 1.43% to close at $11.71.

A market source said that the airline's CEO, Gary Kelly, said he isn't ruling out participation in a possible airline merger, and added that the company's strong balance sheet positions it well to take advantage of a wave of consolidation.

On Wednesday, according to an SEC filing, Southwest Airlines board chairman, Herbert D. Kelleher, sold 50,000 shares of the company's common stock.

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