Bradford & Bingley sparked fresh fears of a painful bank reporting season yesterday when it kicked off the annual results round with a 49 per cent plunge in pre-tax profits.

Shares in the lender slumped by more than 23 per cent to close at 187p, the lowest since the bank floated in 2000, on the back of unexpectedly large writedowns and a jump in mortgage arrears.

Profits fell to £126 million for the year to December 31, down from £246.7 million in 2006, the bank said.

British banks are expected to deliver a depressed set of figures for 2007. Analysts at Credit Suisse told bank investors that they had not yet seen the worst effects of recent financial turbulence. “Things could get worse before they get better,” they said. “Ultimately, we are only at the start of what could prove to be a very long workout process.”

B&B, the first bank to report, revealed writedowns of £94.4 million on its investments in collateralised debt obligations (CDOs) and structured investment vehicles (SIVs), including Whistlejacket, the Standard Chartered SIV that was put into receivership on Monday. The bank booked a £133 million fair value adjustment – which means that assets are yielding less than expected but are not worthless – on its investments in synthetic CDOs. It made a paper loss of £23.5 million on hedges that it took out against interest-rate volatility and lost £58 million when the bank sold two of its mortgage portfolios for below-par last year.

Steven Crawshaw, the bank’s chief executive, was upbeat about B&B’s ability to fund new business this year. He negotiated a £2 billion credit facility with other banks, with the opportunity to increase it at a later date, and has taken £1.2 billion in deposits since the start of the year.

B&B expects to have £10 billion of mortgage redemptions during the year, of which £3 billion will remortgage with the bank, leaving about £7 billion to write new mortgages. These sums mean that “we’re very comfortably funded for the whole of this year”, Mr Crawshaw said. He blamed the Bank of England’s “constrained monetary policy in 2006 and 2007” for 43 per cent increase in arrears, albeit from a low base.

Mr Crawshaw predicted a “quietening” but not a “huge slowdown” in the British housing market. Commentary, page 49

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