CREDIT WRITEDOWN MAY WIPE OUT A&L DIVIDEND

The bank’s shares dived 51.75p to 458.75p.

This reduced its market value by £200million to £1.9billion and left it vulnerable to ejection from the FTSE 100 next month.

Analysts said the higher-than-expected writedowns could wipe out first-half profits and the bank might struggle to pay shareholders a dividend.

Any takeover hopes faded with one potential bidder, French bank Credit Agri­cole, announcing a £4.8billion rights issue to cover its own credit-crunch losses.

A&L said the writedowns meant pre-tax profits had been hit by £192million from bad debts in its treasury operations, compared to £185million for the whole of last year. A further £199million was wiped off reserves following downgrades in its investment portfolios.

Profits will be further squeezed by the £49million extra the bank is paying to borrow on the interbank money markets, although A&L ruled out a rights issue. It said it was fully funded until the second quarter of next year.

The company has also extended a voluntary redundancy programme, with costs doubling from £10million to £20million for the half.

Mortgage lending fell by £1.5billion to £41.2billion as the bank cut back to protect its capital. It said house prices would fall by about 5 per cent this year and the same again next year.

A&L warned in February that a worsening in market conditions could prompt a dividend cut.

Finance director Chris Rhodes said it was still too soon to decide. “We are still walking a tightrope between overall profitability and maintaining a dividend.”

A&L tried to offer some cheer, saying those in arrears had grown by just 300 to 2,650 out of a total mortgage book of 462,270, or 0.57 per cent. It said credit quality elsewhere remained strong.

* Barclays faced renewed speculation it would launch a fundraising tomorrow. The shares fell 7p to 437.75p. Analysts said it might need to raise more than £6billion.