Ambac, the struggling mortgage bond insurer, said yesterday that it would raise $1.5 billion (£756 million) in a rights issue. However, it gave warning that this may not be enough to prevent further downgrades of its key credit rating.

The sale of $1 billion of new shares and $500 million of equity units is being managed by Credit Suisse, Citigroup, Bank of America and UBS.

The amount falls well short of the $3 billion injection that a banking consortium, which includes Barclays and Royal Bank of Scotland, had sought to arrange.

Ambac guarantees the payment of interest and principal on the securities it underwrites and analysts expect it to face between $3 billion and $8 billion of claims as the housing crisis feeds through into bond defaults.

Shares in Ambac, which were suspended at midday pending an update on the group’s rescue talks, fell steeply after the announcement was made, hit by mounting concerns that $1.5 billion would not be enough, especially as Ambac said that it may be insufficient to maintain its top AAA credit rating with Moody’s and Standard & Poor’s.

Ambac’s shares had risen by 63 cents, or 5.9 per cent, to $11.35 before trading halted on hopes that a significant rescue package had been agreed. They closed $2.02 down, however, more than 18 per cent, at $8.70.

If Ambac was unable to meet its obligations, the value of the $556 billion of government and mortgage bonds that it underwrites would plummet, leading to a fresh round of writedowns among the investors that own them.

The consortium of banks that put together the package, which also includes Citigroup and UBS, would be among those that would be hit hardest by Ambac’s inability to pay, because they have the highest exposure to the insurer.

Ambac’s plan to raise money comes after the group cut its dividend last week and said that it would suspend writing new business for six months as it sought to conserve cash.

Ambac has already lost its AAA rating with Fitch and desperately needs new funds to regain it. With the prospect of downgrades from the other ratings agencies, its ability to write new business would be severely hampered.

Ambac is not the only bond insurer seeking new funds to finance an inevitable rise in claims. Banks could lose up to $70 billion if the biggest insurers, such as MBIA, Ambac and FGIC, lost their top credit ratings. Collectively, they insure about $2,400 billion of bonds.

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