Panic among savers spread to investors yesterday as Alliance & Leicester's shares lost nearly one third of their value.
Shares in the bank - Britain’s fifth-largest mortgage lender - fell by more than 31 percent with most of the fall coming in the last half-hour of trading.
The announcement follows the ongoing concerns of Northern Rock.
Like the building society, mortgages play a key role in A&L's business model.
However, unlike its rival, A&L is thought to be less dependent on other banks and institutions for funding.
The fall follows the statement made earlier this month by the company saying that "current conditions in the funding and liquidity markets have had no material impact on either profits or franchise growth".
The bank said yesterday that if anything had changed since then, it would have made a statement to the Stock Exchange.
In a further indication that Alliance & Leicester was not short of funds, the bank bought back its own shares yesterday.
Investors panic
Fears that A&L would be the next bank to ask the Bank of England for emergency funding forced it to go public to head off the panic saying it knew of no reason why the shares had slumped and had not sought Bank of England funding.
Rensburg Sheppards fund manager Colin Morton told Bloomberg: "The worrying thing from Alliance & Leicester's point of view is that unless they move quickly to dispel any rumours they may see queues of people outside their branches."
The panic knocked £1.2 billion off the bank's market value as its shares had their biggest fall for at least 10 years.
The company has reassured customers that they should have no concerns as to the safety of their money.
Shares in Bradford & Bingley another prominent mortgage lender also fell by more than 15 percent.
September 18 2007
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