Shares in Alliance & Leicester dived to a new all-time low yesterday when the mortgage bank coupled dismal results for 2007 yesterday with what amounted to a profit warning for this year.
A&L said the crisis in credit markets is costing it an extra £150 million a year in securing funds for new business.
The shares crashed right down to 428p early on, but then rallied strongly to finish at 492p, still a 36p loss on the day, amid suggestions that this one-time bid favourite could well become a takeover target at this kind of price, down from a peak of 1197p last year.
Profits dropped to £170 million, down from £399 million in 2006, while the core operating profit of £417 million still represented a 29 per cent setback. The year's total dividend of 55.3p, which A&L said it expects to maintain for 2008, is up 2.2 per cent and gives the shares a yield of 11.2 per cent.
A&L highlighted the prospect of slowing growth in both the economy and the housing market during 2008, although it forecast that average house prices would remain "broadly stable".
"The trading outlook for financial services will be challenging in 20087 and we will maintain the prudent approach to lending which has led to our customer lending asset quality being better than the industry average," said Chris Rhodes, finance director and acting chief executive.
"We will slow down our mortgage lending during this year.
"We will maintain our current strategy of doing only high-quality business with no self-certification, no sub-prime, very little buy-to-let and not lending any more than 90 per cent of loan to value.
"We will not be out there behaving aggressively."
A&L said it had further strengthened its liquidity position since announcing new funding last month, which covers its needs until the first quarter of 2009. "Until there are clear signs of stability, funding will be a priority," Mr Rhodes added.
Higher costs of securing this liquidity will squeeze A&L's net interest margins, now expected to be just 1 per cent over 2008, against hopes for 1.07 per cent last November.
Turmoil in the money market and the American sub-prime crisis has wiped £185 million off the value of A&L's investments - against £55 million it estimated in November.
Another £210 million has been taken off the value of other investments and assets, but not counted against the profit and loss account. The results would have been a great deal worse but for a tougher approach to lending last year. A&L said it rejected two-thirds of applications for unsecured lending in 2007.
More cautious lending reduced the number of borrowers defaulting on loans last year and bad debt charges. Mortgage accounts more than three months in arrears fell from 0.51 per cent in 2006 to 0.49 per cent in 2007, while arrears for unsecured loans fell from 5.6 per dent to 5.5 per cent.
Impairment charges against the loan book dropped by £12 million to £85 million. Despite that, the number of homes repossessed almost doubled from 90 in 2006 to 171 last year.
A&L said it plans increase its customer deposit base so as to rely less on wholesale money markets. Last year, customers' deposits grew by £1.2 billion, but that was little more than half the increase in 2006.