Ambac Financial Group, parent of bond insurer Ambac Assurance Corp., warned that its liquidity could dry up before the second quarter of 2011 and that it may have to file for bankruptcy protection, according to its third-quarter 10Q filing. The company said current liquidity is "currently insufficient to fund its needs beyond the near term."

Ambac is attempting to respond to the issue by developing new strategies but the situation is such that the failure to successfully execute one of the strategies "could result in it running out of liquidity by the first quarter of 2011 or potentially sooner," the company said in its quarterly 10Q filing lodged with the Securities and Exchange Commission Monday.

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