Welcome to the Ambac Financial Group, Inc. second quarter 2009 earnings conference call. (Operator Instructions). It is now my pleasure to introduce your host, Sean Leonard, Senior Vice President and Chief Financial Officer for Ambac Financial Group, Inc.

Welcome to Ambac's second quarter conference call. I'm Sean Leonard, Chief Financial Officer of Ambac. Presenting with me today is David Wallis, Chief Executive Officer. [inaudible], Ambac’s Deputy Chief Risk Officer, is also with me and will be available to answer questions later on when I open the call up to questions and answers. Our earnings press release and a quarterly operating supplement are available on our website. Please note that we have not prepared a slide presentation, but we have prepared and put some of the key information that was in prior slide presentations in our operating supplement. Also note that this call is being broadcast on the internet at www.ambac.com. During this conference call, we may make statements that would be regarded as forward-looking statements. These statements may relate to, among other things, management's current expectations of future performance, future results and cash flows, and market outlook. You are cautioned not to place undue reliance on these forward-looking statements which reflect our current analysis of existing trends and information as of the date of this presentation. There is an inherent risk that actual results, performance, or achievements could differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. These differences could arise from a number of factors. Information concerning factors that could actually cause results to differ materially from the information we will give you is available in our press release and in our most recent Form 10-K for the fiscal year ended December 31, 2008, and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K. You should review these materials for a complete discussion of these factors and other risks. Copies of these documents may be obtained from the SEC website. I will now turn it over to David Wallis, who will comment on Ambac's strategic priorities.

As Sean will summarize, the quarter’s results are very disappointing as continued core performance of the RMBS related portfolio and rising forward interest rates that escalated projections of future claims. In the face of this continued degradation, we have refined the focus of our activities in order to heighten our concentration on risk management and holding company liquidity issues. Let me briefly comment. On June 19th, we announcement the postponement of our efforts to launch Everspan—our intended public finance only financial guarantor. This decision was taken after an extensive but ultimately unsuccessful effort to raise external capital in order to satisfy rating agency requirements. Given the Everspan decision, together with the recent rating agency downgrades clearly resultant from the pre-release of this quarter’s results, we have no ability to write insurance business. It is therefore abundantly clear that our focus has to be management of our balance sheet with an intensifying emphasis upon risk management activities. Given the holding company’s liquidity position, we’re seeking any and all possible alternatives to resolve the situation. Along these lines, per the announcement of last week, we have elected to discontinue payments of interest on Ambac Financial Group’s subordinated debt securities. We’ve also discontinued payment of monthly dividends on Ambac Assurance’s auction market preferred shares. In relation to our key risk management objectives, we have recently expanded our capabilities in two related areas, these being mortgage servicing and risk analytics. Given the acute pressure that mortgages services are under, never having been properly equipped to handle currency stresses, we have grown a specialist group to focus upon our own interests in this important area. This group will seek to enforce rights, monitor the fulfillment of agreed servicing protocols, and seek to enhance the efficiency and overall economics of the servicing function with respect to RMBS transactions. Given the difficulties experienced in predicting and analyzing the performance of many insured transactions throughout the freefalling housing market, we have acquired a new group—NSM Capital Management to assist us in this process. Once fully assimilated, this group will be an important fulcrum around which we will be able to better predict, manage, and mitigate the risks that we face. These mortgage servicing and analytics related groups together with existing expertise and resource will progressive constitute a center of excellence in an overall platform of risk management activity. Finally, a brief note on CDO of ABS commutation activity, where we have reduced our exposure by approximately $2.8 billion at a cost of around $750 million. From a purely internal perspective, commutations and settlements represent a difficult balance between large cash outlay and risk reduction. Although we are satisfied that the balance of these elements has been satisfactory thus far, it will likely become increasingly difficult to make further progress as we weigh the prevent value of these two elements as against any available alternatives and our general liquidity requirements. With that, let me turn it back to Sean.

In my prepared remarks, I’ll provide an overview of quarter’s GAAP financial results and the primary factors driving them. I will also provide a brief overview of our statutory results and surplus levels and finally a brief overview of the company’s liquidity position, but one reminder though before we get to the quarter results. As of January 1, 2009, Ambac’s implemented the new accounting standard for financial guarantee insurance contracts called FAS163. The most significant changes related to the implementation of FAS163 are the recognition of premium revenue, recognition on the balance sheet of future installment premiums, and reporting of losses. Due to the changes in accounting for these items 2008 and 2009 results are not comparable. Now, I’ll discus the financial results for the quarter. Net loss for the second quarter of 2009 was $2,386.6 million, or a loss of $8.33 per share. That compares to a net income of $823.1 million or net income of $2.80 per diluted share in the second quarter of 2008. The second quarter 2009 loss was primarily driven by three factors—first our net provision for loss and loss adjustment expenses amounting to $1230.8 million; second, other than temporary impairment losses on securities in our financial guarantee and financial services investment portfolios amounting to $862.1 million on a combined basis; and third, additional valuation reserves on our deferred tax assets. I will discuss each of those items during my prepared remarks, but it should be clear that once again our financial results were highly impacted by our exposure to deteriorating mortgage related exposures and securities. Total net premiums earned in the second quarter 2009 amounted to $177.7 million, a decrease of 45% from the second quarter of last year. The majority of the decrease was due to lower accelerated premiums, which are a component…

(Operator Instructions). Your first question comes from the line of Arun Kumar - J.P. Morgan.

The theme among several of your peers in the industry has been recoveries, commutations, and so on. While you have been able to commute a fair amount of the CDOs that you’re wrapped, I wondered if you could give us any progress on the recovery efforts going forward. I know that has been an area of emphasis over the past several quarters, if you will. If you could just tell us where you stand in terms of recoveries, dialogue with the institutions that put those structures together, and also if you could give a little bit of color on expectations for future commutations. I know you said it’s going to be fairly difficult, but given the financial condition of the firm, I would think that it’s probably not going to be all that difficult to get commutations down the road, at probably even better terms than what you have achieved so far.

Obviously, we intend across all aspects of our business to actively pursue in our eyes wrongdoings, so we have obviously launched litigation with respect to certain of our exposures, and if we think that bad things are being done, we will continue to do that, but I don’t want to go into those sorts of comments any further than that. Let’s say that we continue to enforce our rights. With respect to commutation discussions, as I briefly indicated at the end of my script, it’s a balance. Yes, it’s risk reduction, but also obviously it’s large cash out the door, and whilst we still have considerable claims paying resource, you have to balance the risk reduction as against the cash out the door and the alternative uses for that cash. What we’ve done is we know what we’re happy with. We’ve analyzed it carefully. To take your point, in terms of being cognizant of others’ views of ourselves as perhaps encapsulated in our CDO spread, but we’re certainly not in a position and are not willing to just commute. I think it’s obvious to all that we can’t commute our way out of this, so to speak, so we need to be very selective and very disciplined in any conversations that we have, and I think candidly we’ll find commutations increasingly difficult as we have alternative uses for that cash.

The question to follow up would be given the amount of statutory capital that you have based on the regulatory approval that is granted to you, if you continue to have losses in your CDO portfolio, RMBS, or elsewhere, the amount of capital that you have would be depleted even further. Wouldn’t that strengthen your hand in commutations and get something substantially better than the $0.26 that you commuted the transactions in the past month or so for?

Perhaps you’d like to offer your role as a consultant? That’s possible, and if it does that, that’s great, but we’ll see.

Your next question comes from the line of Darin Arita – Deutsche Bank. Darin Arita – Deutsche Bank: With respect to $1.6 billion in impairments in credit derivatives in the quarter, can you give a breakdown of the contribution from the LIBOR rate movement versus the deterioration of the underlying collateral?

The contributions would be about 55% coming from the forward LIBOR curve shifts and the balance coming from portfolio deterioration. Darin Arita – Deutsche Bank: With respect to your loss reserves, you changed the discount rate that you are using to the risk-free rate. Can you give some sensitivity on how the loss reserves would change with maybe with 50 or 100 basis point change in the risk-free rate?

I’m assuming you’re talking about the GAAP. Clearly, on our statutory numbers, we’re still using as I mentioned the portfolio the 4.5% rate. I don’t have an answer for the sensitivity. I’d have to get back to you on that. I don’t have that information at my fingertips. Darin Arita – Deutsche Bank: In terms of the holding company liquidity without being able to declare an ordinary dividend in 2010, what are the other plans that you have to improve the holding company liquidity?

Obviously as we mentioned, Darin, we’ve cut coupon and preference share payments, and we’ll explore any alternatives that may or may not be available. As you pointed out, the traditional, if you will, means of servicing debt at the insurance or holding company has been dividends from the operating company which will depend upon improved performance in terms of RMBS related matters.

Your next question comes from the line of Donna Halverstadt – Goldman Sachs. Donna Halverstadt – Goldman Sachs: I think the answer to my question is going to be no, but given that unless you live 24 x 7 with stat accounting, I don’t think you really know all the ins and outs, so I’m going to ask it anyways. Now that you’ve released the contingency reserve or the bulk of it, are there any other statutory maneuvers you can use in the future to materially bolster surplus?

It would be very unhealthy to live with statutory accounting 24 x 7. That’s a general comment, but what we can do is there are some sensitivities to surplus levels, and the obvious ones are loss development which we’ve brought the levels down quite a bit, but we are talking to our reinsurers. We can commute contracts, but we would only do so not with a view towards statutory accounting results, but a view towards proper economics. The pay-down of the inter-company loans, since the unsecured piece of the loans we have a 30% reserve on, there are sensitivities there as those loans get paid down. There will be some benefit to increased values on the Alt A securities and just general accretion because we’ve written those securities down to a level to a market yield type of level, so we’ll get a boost from that, and then there’s the whole realm of permitted practices which are something that could be discussed, but that would be the last thing in the line of things we would do, and then just any commutations if we have any of those that are successful that would reduce our levels of impairment. Donna Halverstadt – Goldman Sachs: The other thing I wanted to ask is I know in the past you all have said that even if you breach the $2 million Wisconsin minimum that the regulator has discretion as to what he does. Can you give us some color on the limits of his discretion or what sort of pathway we should expect in that event?

I don’t think they have pretty broad discretion, so the limits I don’t believe would be significant. I think it’s at their discretion based upon the facts and circumstances as they see it, and how they want to treat the situation considering what else may be out there relating to contractual provisions and other things that would be detrimental to the policy holders. They have a view obviously of protecting the policy holders, so I think they would think about how potential action would affect that over perhaps a longer term horizon.

There are no further questions at this time. I’d like to turn the floor back over to management for closing comments.

Thank you for attending our second quarter conference call.