Nov. 5 (Bloomberg) -- Ambac Financial Group Inc.’s bond- insurance unit may be placed into receivership, leaving no value for company’s shareholders, as the minimum surplus it’s required to maintain dwindles, according to JPMorgan Chase & Co.

The unit’s statutory capital as of Sept. 30 “could very well be in a deficit,” Andrew Wessel, a JPMorgan analyst in New York, wrote in a report today.

Ambac, the second-largest bond insurer, has yet to provide investors with an update on the status of its regulatory capital. The company was stripped of its AAA bond insurance rating last year after surging loss projections on securities backed by soured home loans. Yesterday, Ambac said it will make $459 million in additional payments related to defaulted securities.

Insurance regulators in Wisconsin, which oversee Ambac, will likely take “some level of supervisory action to protect policyholders in the near term,” Wessel wrote. “We believe Ambac might be placed into receivership near term.” He reiterated his “underweight” rating on the stock.

As of June 30, Ambac’s insurance unit had statutory capital surplus of $500 million which may have been completely eroded as of the end of September, Wessel wrote. Ambac was stripped of its AAA credit ratings last year and has stopped writing new business.

“I don’t think there’s a basis for his comments,” said Peter Poillon, a spokesman for Ambac. “He’s making assumptions about our statutory filings that haven’t been completed at this point.”

Ambac fell 20 cents, or 13 percent, to $1.30 at 10:53 a.m. in New York Stock Exchange composite trading. The stock reached a high of $96.08 on May 18, 2007.

Filing Delay

Chief Financial Officer Sean Leonard said on a conference call yesterday that the company hasn’t released an operating supplement, which typically contains the status of its regulatory capital, because it has yet to make its statutory filings with regulators for the third quarter. The company expects to meet a Nov. 16 deadline to do so, he said.

In August, Ambac said it received permission from its regulators to release $1.8 billion of contingency reserves in a bid to remain above minimum capital requirements. The company had previously warned that its regulatory capital might fall below the statutory minimum because of rising claims on insured mortgage bonds.

That would trigger a cross default at Ambac’s publicly listed holding company, Wessel wrote. Even if Ambac is permitted to operate outside of receivership, Wessel said he expects Ambac’s holding company to default on its debt as soon as the first quarter of 2011.

Quarterly Profit

Bond insurers are required to maintain minimum surpluses or risk being taken over by regulators. To prevent takeovers, insurers have paid holders to tear up credit-default swap contacts on their poorest-performing securities.

Credit-default swaps pay the buyer face value if a borrower defaults on its debts in exchange for the underlying securities or the cash equivalent.

Yesterday, Ambac reported third-quarter net income of $2.19 billion, reversing a year-earlier loss, after unrealized mark- to-market gains in its credit derivatives portfolio.

The profit, equal to $7.58 a share, compares with a net loss in the year-earlier period of $2.43 billion, or $8.45 a share, the company said in a statement.

After adjusting for a $2.7 billion gain the company booked for “a substantial increase in the cost to insure its own debt,” Ambac would have lost about $2 a share last quarter, Wessel wrote.

“The company recorded another $700 million of expected repayments from fraudulent loans put back into institutions, bringing the total now claimed to $1.9 billion,” he wrote. “Ambac has recovered just $60 million so far in repayment.”

MBIA Inc. is the world’s largest bond insurer.

To contact the reporter on this story: Christine Richard in New York at Crichard5@bloomberg.net

Last Updated: November 5, 2009 11:13 EST