Bowing to reality, Ambac Financial will do what many experts and regulators have suggested: split itself into a muni-shop and a structured finance shop in an effort to protect the rating of all those muni bonds it insured--not to mention its own ratings. Fitch recently downgraded the firm, which also is planning to raise $3 billion. This is largely seen as good news and you have to wonder if the others, notably MBIA, will follow suit. The New York Times notes that Citigroup, Merrill Lynch and others have a lot on the line. Ratings on their CDOs and other structured products depend, in part, on the backing of solvent insurers.  

For more:
- here's the New York Times article

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