Abbey National has issued a profits warning after bad debt provisions spiralled in a key division.
Its corporate-based Wholesale Bank arm said credit markets remained challenging and cover for high risk loans would be higher.
Abbey predicts pre-tax profits this year will be down on both market expectations and last year's result.
The news led to shares plummeting 105p -- 10 per cent -- to 902p which has had a knock-on effect across the banking sector. The City had previously been expecting annual pre-tax profits of about £1.9bn, similar to the figure recorded year earlier.
Most of the decline will be in the first half of the financial year, with provisions and write-offs in Wholesale Bank likely to match the whole of last year.
The bank added that sales of with-profit bonds had also been affected by lower investor confidence.
Abbey said a new management team was in the process of repositioning the division.
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