Ambac Commutes Approximately $3.5 Billion of CDO Exposure for Cash Settlement of $1 Billion

As a result of the settlements, Ambac expects to record positive adjustments to its aggregate mark-to-market and impairment reserves. In addition, the stress case losses in the rating agency capital models for these transactions combined exceeded AAC's final payments; therefore, the settlements will result in an improved rating agency capital position for AAC.

"My immediate focus as Ambac's new CEO is to restore confidence in our balance sheet through aggressive risk reduction," said David Wallis, Ambac's Chief Executive Officer. "Ambac has consistently emphasized that in this period of extreme uncertainty in the capital markets, the de-risking and de-leveraging of our balance sheet is our highest priority. These settlements represent positive and tangible steps towards that goal. We have now successfully commuted five CDO transactions representing $4.9 billion of notional exposure including three of the CDO-squared transactions that had been widely perceived to be the riskiest segment of our CDO portfolio. I am confident that further progress towards remediation of our book will be achieved."

About Ambac

Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations, has earned a Baa1 rating (developing outlook) from Moody's Investors Service, Inc. and a A rating (negative outlook) from Standard & Poor's Ratings Services. Ambac Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).

Forward-Looking Statements

This release contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any or all of management's forward-looking statements here or in other publications may turn out to be wrong and are based on Ambac's management current belief or opinions. Ambac's actual results may vary materially, and there are no guarantees about the performance of Ambac's securities. Among events, risks, uncertainties or factors that could cause actual results to differ materially are: (1)changes in Ambac's and/or Ambac Assurance's credit or financial strength ratings; (2)the risk of credit and liquidity risk due to unscheduled and unanticipated withdrawals on investment agreements; (3)the risk that market risks impact assets in our investment portfolio; (4)inadequacy of reserves established for losses and loss expenses; (5)credit risk throughout our business, including credit risk related to residential mortgage-backed securities and CDOs and large single exposures to reinsurers; (6)market spreads and pricing on insured collateralized debt obligations ("CDOs") and other derivative products insured or issued by Ambac; (7)the risk that holders of debt securities or counterparties on credit default swaps or other similar agreements seek to declare events of default or seek judicial relief or bring claims alleging violation or breach of covenants by Ambac or one of its subsidiaries; (8)default by one or more of Ambac Assurance'sportfolio investments, insured issuers, counterparties or reinsurers; (9)the risk that we may be required to raise additional capital, which could have a dilutive effect on our outstanding equity capital and/or future earnings; (10)our ability or inability to raise additional capital, including the risks that regulatory or other approvals for any plan to raise capital are not obtained, or that various conditions to such a plan, either imposed by third parties or imposed by Ambac or its Board of Directors, are not satisfied and thus potentially necessary capital raising transactions do not occur, or the risk that for other reasons the Company cannot accomplish any potentially necessary capital raising transactions; (11)the risk that Ambac's holding company structure and certain regulatory and other constraints, including adverse business performance, affect Ambac's ability to pay dividends and make other payments; (12)legislative and regulatory developments, including the Troubled Asset Relief Program and other programs under the Emergency Economic Stabilization Act and other similar programs; (13)changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (14)changes in capital requirements whether resulting from downgrades in our insured portfolio or changes in rating agencies' rating criteria or other reasons; (15)changes in accounting principles or practices relating to the financial guarantee industry or that may impact Ambac's reported financial results; (16)the level of activity within the national and worldwide credit markets; (17)competitive conditions, pricing levels and reduction in demand for financial guarantee products; (18) changes in our business plan, our decision to discontinue writing new business in the financial services area, to significantly reduce new underwriting of structured finance business and to discontinue all new underwritings of structured finance business; (19)the risk that our underwriting and risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (20)the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, or FAS 133, to the portion of our credit enhancement business which is executed in credit derivative form; (21)changes in expectations regarding future realization of gross deferred tax assets; (22) risks relating to the re-launch of Connie Lee as Everspan Financial Guaranty Corp.; (23)operational risks, including with respect to internal processes, risk models, systems and employees; (24)the risk of decline in market position; (25)changes in prepayment speeds on insured asset-backed securities; (26) factors that may influence the amount of installment premiums paid to Ambac; (27)the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on our business, operations, financial position, profitability or cash flows; (28)changes in tax laws; (29)the policies and actions of the United States and other governments; (30) other factors described in the Risk Factors section in Part I, 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008, and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K, which are or will be available on the Ambac website at www.ambac.com and at the SEC's website, www.sec.gov; and (31)other risks and uncertainties that have not been identified at this time. Readers are cautioned that forward-looking statements speak only as of the date they are made and that Ambac does not undertake to update forward-looking statements to reflect circumstances or events that arise after the date the statements are made. You are therefore advised to consult any further disclosures we make on related subjects in Ambac's reports to the SEC.

SOURCE: Ambac Financial Group, Inc.

Ambac Financial Group, Inc. Investor/Media: Vandana Sharma, 212-208-3333 vsharma@ambac.com or Fixed Income: Peter Poillon, 212-208-3222 ppoillon@ambac.com