Ambac rescue?

There's a rumour of one, certainly, with some big names according to CNBC: RBS, Wachovia, Barclays, UBS, Societe Generale, BNP Paribas, Dresdner and Citigroup.

This is a curious list. Firstly it is mostly European, with no U.S. broker/dealers involved. Some of the banks on the list - notably Soc Gen - might be assumed to have bigger problems themselves right now without supporting Ambac. RBS and Barclays have recently been identified as having relatively low capitalisation given their tangible equity to asset ratio so it would be curious if they are willing to put up cash for an investment that will be a straight deduction from capital.

It is impossible to opine on how good an idea any rescue will turn out to be until we have seen the structure - some people are talking about a reinsurance sidecar as an alternative to a pure equity injection - but certainly it hard to see that the banks would leave much for existing shareholders. The equity bounce (ABK was up 16% on Friday) therefore feels overdone.

Elsewhere in the forest FGIC has been downgraded so presumably it is too late for them. And Bill Ackman is still gunning for MBIA and Ambac. His latest letter is here: in it he sets out an estimate of $11.6B for the capital necessary for each of the two big monolines. So, boys, get your cheque books out. Well, most of you. We'll need cash from you, Soc Gen...