10:50AM New York – Barclays drops 2% after it reported quarterly loss and weakening capital ratios.

Barclays, the third largest British bank with a significant presence in the U.S. said in its interim management statement that the first quarter 2008 earnings are below that in the first quarter of 2007, without disclosing the results in details. The bank also stated that Tier 1 capital and equity ratios have worsened since it reported them at the end of the last year. Ratios then were 7.6% and 5.1% respectively.

The company reported a loss of £1.1 billion in the quarter on the charge of £1.7 billion related to credit market losses and still has exposure to £14 billion pounds to subprime and other asset backed loans at the end of the first quarter. The leverage finance loan exposure is £7.4 billion. The charges related to credit market included £598 million loan impairments, £495 million against asset backed securities and £513 million losses in credit market derivative exposures.

Barclays stuck with leveraged loans

At the end of the quarter the net exposure to collateralized securities fell to £3.98 billion from £4.67 billion, to U.S. subprime loans to £4.24 billion from £5.04 billion, to mono-line insurance increased to £2.7 billion from £1.33 billion, commercial mortgages to £12.6 billion from £12.4 billion and leveraged finance was nearly unchanged to £7.4 billion.

Most banks like Barclays are stuck with loans issued to finance leveraged buyout boom during the 2006 and 207. Barclays has not been able to securitize or sell loans issued to fund leveraged buyouts to private equity companies.

Collateralized securities portfolio consists of 70% loans issued in 2005 and earlier, 27% issued in 2006 and 3% in 2007.

Failed acquisition of sub-prime lender EquiFirst in 2007

Of the loans issued under U.S. subprime categories, whole loans are £2.4 billion of the total of £4.24 billion and £329 million of which are behind in payment of at least 60 days. The company subprime loan portfolio consists of its acquisition of EquiFirst in March 2007. The average loan to value origination for these whole sub-prime loans at the end of the first quarter was 79%.

Alt-A loan, or known as low mortgage loan documentation had loan to value ratio was 81% at the end of the quarter with £3.01 billion of £4.475 billion loans were AAA rated. The overall protection provided by subordination was only 21%.

The value exposure to monocline insurance assets was £2.7 billion, of which £2.35 billion was AA or AAA rated.