Dinallo OK with Ambac buying back shares from underwriters

By Lilla Zuill

HAMILTON, Bermuda, July 7 (Reuters) - Ambac Financial Group's (ABK.N: Quote, Profile, Research) plan to buy back shares from underwriters of a March offering has merit as it helps boost investor confidence, New York Insurance Superintendent Eric Dinallo said on Monday.

Ambac announced plans for the $50 million share repurchase late last week, intending to buy back shares from underwriters of the company's $1.155 billion share offering in March. The underwriters were not authorized to sell their shares for a period after the offering.

"I think the stock price gets to a point when it is hard for anyone to argue with (a buyback)," said Dinallo, in a telephone interview from New York. "It was a modest amount versus the benefit," he added.

Dinallo noted that Ambac's stock has jumped significantly after the announcement last Thursday, shortly before U.S. financial markets closed for the long July 4 weekend.

The stock rose again on Monday, closing up 4.5 percent to $1.39. Ambac, and others in the sector, have seen their stock price badly battered since last year as the subprime mortgage crisis reduced the market value of many bonds it insures.

Ambac shares are more than 98 percent off the $87.14 the shares fetched a year ago.

Dinallo said Ambac did not appear on the brink of insolvency. "Absent a question of solvency, I don't think that it (the buyback) is an issue," he added, saying that he was comfortable that Ambac could afford to spend the capital.

Bank of America, Citigroup, Credit Suisse and UBS were the underwriters on Ambac's offering and hold about $50 million in Ambac stock, according to earlier filings.