Ambac, the troubled bond insurer, lost nearly a fifth of its stock market value on Wednesday after revealing a $1.5bn recapitalisation plan that disappointed investors hoping for a bigger rescue effort.

Investors anticipated Ambac would receive a cash injection of up to $2bn from a group of banks. Instead, Ambac said it would sell at least $1bn of common stock and $500m of other equity instruments in an offer to be priced today, substantially diluting its existing shareholders.