A&L's assets take a £156m dive in credit crisis hit

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The former building society, which has been regularly rumoured to have applied to the Bank of England for emergency funding but always denied it, warned that after the writedowns it will miss profit forecasts for the year.

It said that while core-operating profits before a £55 million hit on the profit and loss account will actually beat analysts' forecasts - which averaged £598 million before today - after the extra losses it will come in below that number. Last year A&L made profits of £585 million.

The bank today made it clear that it will have to rely much more on customers' savings than it can depend on the money markets in the coming months.

A&L, which is headed by chief executive David Bennett, said by the end of October, 57% of its loans and mortgages were funded by customers' savings, leaving the other 43% coming from the money markets.

"In 2008, we expect our asset growth to be primarily funded through higher customer deposit balances, although we will continue to look for opportunities to complete further capital market transactions," it said.

The bank also tried to reassure its own investors that it has "continued to manage our funding requirements successfully during the second half of the year, through a combination of raising new funds or rolling over existing funding as it matures".

It added that "as a prudent measure and in recognition of the current market conditions, we have put in place additional funding facilities, a significant proportion of which are backed by A&L residential mortgage assets".

This meant that it had now pre-funded its maturing medium-term funding, commercial paper and certificates of deposit into the third quarter of 2008. A&L's writedowns of exotic treasury instruments was made up of £15 million from trading securities and £40 million from structured investment vehicles, both of which went through the profit and loss account.

Another £101 million of impairment came from other exotics including collateralised debt obligations which have fallen in vale but are deemed "available for sale" so do not hit the profits.