ALLIANCE & LEICESTER is plotting a savage dividend cut to shore up its finances in a move expected to save the mortgage bank about £80m a year.

Its shares plunged 12% on Friday in reaction to the emergency bail-out that Bradford & Bingley was forced to agree with four of its biggest shareholders.

A&L is widely acknowledged to be in a more secure position than its troubled rival. It has a more conservative mortgage book, but it is being crippled by higher funding costs.

The bank secured its funding to April 2009 thanks to an expensive loan deal with Credit Suisse.

David Bennett, the chief executive, is said to have begun considering a dividend cut shortly after the bank revealed its full-year results in February.

Although no final decision has been taken, the move could be announced in three weeks, when the bank reveals its interim results.

A&L shares are trading on a dividend yield of 20%. A cut from the present total dividend of 55.3p per share to about 35p would bring the ratio back to a normal level. The shares closed on Friday at 255p.

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