Shares in Alliance & Leicester today sank to their lowest since they listed on the stock market 11 years ago as the mortgage lender said profits tumbled 29% last year and warned 2008 would be very tough.

The shares slumped 88p to 440p. They peaked at 1197p last year on takeover talk but have lost more than 40% of their value this year alone. The bank today made it very clear that it has battened down the hatches for 2008 following the Northern Rock crisis.

But investors were panicked by continuing writedowns of its asset-backed securities, lower margins and a downbeat outlook for the mortgage market this year. Broker Cazenove today slashed its 2008 earnings forecast by 26%.

A&L finance director and acting chief executive Chris Rhodes said: "The trading outlook for financial services will be challenging in 2008 and we will maintain the prudent approach to lending which has led to our customer lending asset quality being better than the industry average.

"We will slow down our mortgage lending during this year. We will maintain our current strategy on doing only high-quality business with no self-certification, no subprime, very little buy-to-let and not lending any more than 90% of loan to value. We will not be out there behaving aggressively."

He declined to comment on the nationalisation of Northern Rock, which was brought down by the virtual closure of the credit market last summer. Alliance & Leicester works on a similar model although it relied on wholesale markets for half its funding whereas Rock turned to them for three quarters.

Rhodes said the bank has now secured funding for its maturing wholesale funds and paper into the first quarter of 2009. He also wants to increase the level of funding financed by savers, which was 56% in 2007.

Profits tumbled to £417 million last year on the back of £185 million of writedowns on its debtbacked investments in the wake of the credit crunch.

Rhodes, who said the portfolio's value had fallen £59 million in the first seven weeks of this year, declined to speculate on how much more damage there could be. But he admitted the bank's interest margin will come down to 1% for 2008 against 1.16% in 2007.

Alliance & Leicester converted from a building society into a bank and floated in April 1997 when its members were given shares worth 542p each.

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