A&L shares on rack after £192m hit from credit crunch

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The bank, which has this year veered between being seen as takeover target or in need of a rights issue to strengthen its balance sheet, saw its shares fall 50p to 4601/2p. Rival Bradford & Bingley fell 11p to 162p.

A&L said it had taken a direct £192 million profits hit from the crunch and written down a further £199 million on its balance sheet.

It added that the extra funding costs in the wake of the credit crunch were £49 million in the first four months.

A&L's total 2007 toxic loans writedown was only £185 million.

Chief executive David Bennett said that, excluding the credit-crunch hit, the group's core operating profits were similar to those in 2007. But this could well mean the bank actually made a loss in the last four months, analysts noted. They also worry about the rapid mortgage slowdown.

According to some estimates, A&L's mortgage business may have shrunk by 10% in the first four months of this year. The bank no longer lends to anyone with less than a 10% deposit, and charges higher interest for those who cannot find a 25% deposit.

Bennett, who has returned to work only recently after a lengthy illness, said that the number of borrowers more than three months behind with payments had risen by just 300 to 2650 out of a total of 462,000 accounts. That is 0.57% of mortages in arrears, against an industry average of 1.34% and Northern Rock's 0.94% announced yesterday.

A&L said that it expects its operating expenses to be lower in the first half of this year than last and said its net interest rate margin for the year is on track to average 1%.