Ross said to be trying to buy Ambac

Billionaire investor Wilbur Ross is in serious talks to buy beleaguered bond insurer Ambac Financial Group Inc., according to a published report.

Shares of the company surged on the report in Britain’s Evening Standard newspaper, which said Ross might reach a deal in the next two weeks to acquire New York-based Ambac. The newspaper cited unidentified sources.

Ambac shares rose 98 cents, or 8.6%, to $12.31 in after-hours trading Thursday. During the regular session the stock tumbled $2.37, or 17%, to $11.33.

The shares have plunged more than 85% since May after losses on sub-prime mortgage securities caused the company to lose its AAA credit rating from Fitch Ratings. The New York Insurance Department is pushing banks to unite to rescue Ambac and other troubled bond insurers, which guarantee $2.4 trillion of debt.

“The market would be tremendously relieved by news that somebody’s coming in and capitalizing them to get an unambiguous AAA rating,” said John Tierney, credit strategist at Deutsche Bank in New York.

Ross, who became wealthy buying distressed steel and textile businesses, couldn’t be reached for comment on his reported interest in Ambac. A spokesman for the insurer also couldn’t be reached. However, Ross said this week that he might invest in a bond insurer.

“We have been looking at the financial guaranty insurance companies,” Ross, chairman of New York-based WL Ross & Co., told Bloomberg Television. “They all need capital. I think one or two will likely fail, but I do believe” that it is a valid business model.

Another British newspaper, the Financial Times, reported on its website Thursday that Ross might start a new bond insurer.

The once-unquestioned strength of AAA-rated bond insurers is being reassessed because of concern that they don’t have the capital to cover losses stemming from defaults on sub-prime mortgages. The bond insurance industry had in recent years expanded into insuring mortgage-related securities in addition to municipal bonds, its traditional territory.

“What happened was the industry had a very safe, long-term business, namely in municipal bonds,” Ross said. “That was a very straightforward, very good, solid business.”

Ambac said this week that it was “considering strategic alternatives” after reporting its biggest-ever loss and scrapping plans for raising capital. The company’s fourth-quarter net loss was $3.26 billion after the company wrote down the value of credit derivatives tied to sub-prime home loans.