British banks face a new mauling from mortgage defaults by US middle classes

My Account
Logout

Create an Evening Standard Account

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Welcome! Sign in here

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Forgot your password ?

Registration

* indicates fields that are mandatory

Email *

Password *

Confirm Password *

First name *

Surname *

Postcode *

Country *

Mobile phone number

Username *

Gender *

Year of birth *

When you sign up...

You will have access to all our online competitions, discounted offers and can post comments on our site.

You will also receive The Weekender newsletter sent every Thursday - it’s full of fantastic offers and ideas for the weekend. You can update your email preferences in your account page when you log in.

Other newsletters and emails

Homes & Property Newsletter - Yes I want to receive the weekly email with all the latest news on property in the capital

Occasionally we would also like to send you relevant emails detailing specific offers either from ourselves or carefully selected partners. If you would prefer not to receive these then please tick the appropriate boxes below. We will never pass on your details.

I do not want to receive additional offers and information from the Evening Standard

I do not want to receive additional offers and information sent by Evening Standard on behalf of carefully selected partners

Terms and Conditions

* I have read, understood and agree to be bound by the terms and conditions of Evening Standard

Registration

Mail Sent for Registration Confirmation.

A confirmation email has been sent. Please activate your account by clicking on the activation link sent in your mail box.

Ranking between prime and subprime, Alt-A loans were taken out by the middle classes. As the recession deepens and more white-collar workers lose their jobs, the number of repossessions in more well-heeled areas has soared. British banks Lloyds, Barclays and Royal Bank of Scotland have total Alt-A exposure of at least £12.5billion.

Credit rating agency Moody's has set alarm bells ringing by downgrading the value of Alt-A debt because it has seen an "unprecedented" number of borrowers falling behind with repayments, and losses increasing.

David Watts at London research firm CreditSights, said: "The performance of Alt-A loans is clearly deteriorating rapidly, and we believe that 2009 will see such mortgages worsen further."

Watts estimates that $600billion (£407billion) of Alt-A debt is outstanding and $150billion may need to be written off. British banks have already written down some of the losses.

Analysts had regarded Alt-A as safer than subprime because borrowers had better credit histories. But they were often encouraged to borrow more.

A Moody's report warned: "A sizeable proportion of transactions backed by these Alt-A mortgages have performed similarly to subprime mortgage securitisations.

"The loans backing 2006 and 2007 Alt-A securitisations have shown substantial increases in serious delinquencies and decreases in prepayment rates that are unprecedented for the asset class."

Sandy Chen at Panmure Gordon said: "The problem with Alt-A has been buried by all the other bad news we've had in the last few months."

Lloyds is the most exposed of the British banks with more than £7billion of Alt-A. Its HBOS subsidiary has £6.75billion while the Lloyds TSB arm has £619million.

Barclays' latest interims say it has exposure of £3.7billion. Broker RBS Hoare Govett last week warned that Barclays' "large Alt-A portfolio is perceived to be inadequately written down".

RBS has £1.59 billion of Alt-A but HSBC and Standard Chartered are thought to have relatively little direct exposure.

British banks' problems are dwarfed by those of some of their European counterparts. ING has a €27.7billion (£24billion) portfolio of Alt-A. UBS held as much as $26.6billion, but is understood to have managed to offload much of the paper at a discount.