Banks have bought $500m of shares in Ambac as part of an agreement to provide a backstop to the troubled bond insurer’s $1.5bn equity raising plan, completed this week to protect its vital triple-A credit ratings.

The shares are divided among the underwriters of the $1.5bn deal, which include Credit Suisse, Citigroup, Bank of America, UBS and Dresdner Kleinwort. Two banks – BNP Paribas and Royal Bank of Scotland – bought shares through a $95m private placement, an Ambac spokesman said.

The buying by the banks – shares they can sell – follows six weeks of arduous discussions between Ambac, banks, regulators and ratings agencies aimed at aver- ting a downgrade.

Cuts in the triple-A credit ratings could trigger billions of dollars of writedowns for banks and threaten the top ratings on over $500bn of bonds insured by Ambac, many of which are issued by municipal borrowers.

The plan to sell shares had initially fallen short of hopes for a $2bn capital infusion by banks. In addition, Ambac’s timing coincided with a plunging stock market amid an onslaught of bad news in housing, mortgage and credit markets.

“The market gods were totally against us,” said Michael Callen, chief executive of Ambac.

The new shares were priced late at $6.75 a share. In trading in New York, Ambac shares were down more than 6 per cent at $6.95.

Other investors in the deal include existing Ambac shareholders such as Fidelity Investments and Legg Mason. Ambac said Cerberus, the private equity group, bought $50m of shares.

“With this $1.5bn capital raise...we believe that our Ambac Assurance subsidiary will maintain its triple-A...ratings,” Mr Callen said.

Although ratings agencies Moody’s Investors Service and Standard & Poor’s indicated the deal would avert an imminent downgrade, they have retained their negative outlook.

Some analysts are concerned Ambac’s losses or projected losses on mortgage-backed securities could be greater than anticipated, and that it might need to raise capital again to avoid further downgrades.

With its market capitalisation at just more than $750m, the equity plan significantly dilutes existing shareholders.

The Ambac saga became highly politicised because the lack of confidence in its credit ratings has resulted in higher funding costs for municipal borrowers.

Eliot Spitzer, governor of New York, and Eric Dinallo, the New York insurance regulator appointed by Mr Spitzer, have been pushing banks to step in to prevent an Ambac downgrade.

The uncertain future of bond insurers has weighed heavily on market sentiment for much of this year. However, broader concerns about the extent of losses for banks related to mortgages have overshadowed the impact of the Ambac resolution.