Alliance & Leicester is set to reduce mortgage lending this year after recording a 30% drop in 2007 pre-tax profits in the wake of £185m writedowns on its Treasury assets.

Last year the lender held abortive talks with Santander, the Spanish bank, said pre-tax profits fell from £569m in 2006 to £399m in 2007.

A7L spent £150m in new liquidity facilities which has no raising concern about the bank’s future profitability with figures showing that shares halved in the past year have fallen 36p or 6.82% to 492p.

A&L’s profitability will be reduced even though the new facilities will enable the bank to fund itself until early 2009.

The bank’s funding problems mean that it will have to cut down on mortgage lending in 2008 and is expected to lose market share.

Reports also suggest that the bank is changing its funding profile by using more customer deposits and longer-term wholesale funding.

In 2007, A&L took 4.4% of net new mortgage lending although forecast suggests that the figure will be less this year.

The bank has opted to keep the 100,000 customers who are due to refinance their loans this year rather than attracting new borrowers.

Richard Banks, managing director of whole sale banking, also responsible for Treasury at A&L told Financial Times that he regretted investing in exotic Treasury assets that prompted the writedowns.