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Ambac considering split: report

Troubled bond insurer said to be in talks to separate municipal debt from mortgage-backed securities business, but deal could fall apart.

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NEW YORK (CNNMoney.com) -- Bond insurer Ambac Financial Group Inc. is in talks to split itself into two units, the Wall Street Journal reported on its web site Sunday.

Under the plan, one unit would insure municipal debt, while the other would insure securities tied to mortgages, according to the Journal.

The structure is meant to make sure that municipal bonds backed by Ambac keep high credit ratings, but a deal would be complicated and could fall apart, the Journal said.

New York-based Ambac (ABK) is the U.S.'s second-largest bond insurer, after MBIA Inc (MBI).

On Friday, the U.S.'s third-biggest bond insurer, Financial Guaranty Insurance Co., reportedly asked New York state insurance regulators to split its troubled structured finance arm from its healthy municipal bond insurance business.

FGIC's move came after New York Gov. Eliot Spitzer warned at a congressional hearing Thursday that the state might be forced to "strip the municipal businesses" from bond insurers if they fail to raise sufficient capital to cushion against possible losses in the future.  To top of page

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