HBOS has £6.6bn of 'Alt-A' securities, a US mortgage bond that the market fears could be more toxic than sub-prime debt.
These securities, known more fully as Alternative-A, represent debt secured on mortgages that are said to be as good as prime, even if they did not pass all the tests to be classed as top grade. They sit between prime and sub-prime, but default experience is showing they are almost sub.
The existence of the debt is said to be one of the reasons why investors had become so spooked about HBOS's financial health over recent weeks. HBOS holds only £90m of sub-prime debt, but the £6.6bn of Alt-A dwarfs even the bank's £2bn portfolio of prime US mortgage-backed securities. It has marked down the value of the bonds by 20 per cent, but rivals such as Royal Bank of Scotland have written down their Alt-A holdings to half their face value.
Independent of Sunday