A&L profit wiped out in £209m assets hit

Profits at Alliance & Leicester (A&L) were all but wiped out today as it became the latest bank to be trashed by the credit crunch.

Britain's seventh-biggest bank said profits in the first six months of the year crashed a staggering 99% from £290 million to just £2 million, after it suffered a £209 million hit to the value of risky assets and higher funding costs.

A&L last month accepted a £1.26 billion takeover by spanish banking giant Santander, which bought rival British bank Abbey for £9.5 billion in 2004. the price santander is paying for A&L highlights just how far from grace the British banking system has fallen. two years ago, Credit Agricole of France considered paying almost £6 billion for A&L.

Chief executive David Bennett said the Santander deal offered greater stability and certainty at a time of " significant external risks" due to a worsening economy and turmoil in financial markets. the collapse in A&L's profits comes at the end of a week in which Lloyds tsB and Halifax owner HBOS revealed profits slumped by around 70% as the crisis in financial markets wreaks havoc on UK banks. A host of British banks including Barclays and Royal Bank of Scotland report next week.

Shares in A&L rose ¼p to 340¾p as the City kept its mind on the takeover rather than A&L's figures and outlook.

Bennett said: "There will be continuing uncertainty. We don't see an improvement this year. it is possible the uncertainty will last longer. it is difficult to say where it will end.

"The uncertainty for the UK economy has worsened as 2008 has progressed, and the degree of uncertainty about the economic outlook has increased."

Mortgage lending between January and June tumbled from £6.2 billion to just £2.4 billion, highlighting the freeze in the home loan market which has led to severe falls in house prices.

Bennett said he expected the mortgage market in Britain to halve this year. in line with figures from building society Nationwide yesterday, Bennett said house prices have fallen by around 8% so far this year. the A&L boss forecast further falls in the second half of the year. the bank attracted 154,00 new current account holders in the first half, taking its total to 1.75 million.

Customer deposits grew by £800 million to £24.1 billion as punters piled money into the internet only e-saver and cash ISAs.

Britain's banks have felt the full force of the credit crunch which started in with the meltdown of the subprime mortgage market in the United states.

Billions of pounds have been lost on what at the time looked like clever investments in someone else's debt - but turned out to be toxic waste. Here's the first-half damage

. Profits share price fall

Lloyds TSB £599m (-70%) 38%

HBOS £848m (-72%) 61%

A&L £2m (-99%) 48%