British bank Alliance and Leicester, which is being taken over by Spain's Santander, said first-half profits were wiped out due to a £209 million (Dh1.5 billion) hit to the value of risky assets and higher funding costs.
A&L, Britain's seventh-biggest listed bank, said it made a pre-tax profit for the six months to the end of June of £2m, down from £290m a year before.
The result was in line with analysts' expectations.
A&L last month agreed to a £1bn takeover by Santander and said it expected the deal to be completed in or around October.
With an economic downturn and continuing market turbulence threatening A&L's valuation, the deal with Santander offered "stability and certainty", said David Bennett, A&L Chief Executive.
"Ultimately, with little new here, the driver of price remains the Santander offer," said James Hutson, analyst at Keefe, Bruyette and Woods.
Santander, Europe's second-biggest bank, has long courted A&L and secured it at a knockdown price after an 80 per cent collapse in A&L's share price in the year before the offer. Santander plans to merge A&L with its existing UK bank Abbey.
A&L warned that United Kingdom economic conditions would stay tough and the housing market remained "exceptionally subdued". "We do see an uncertain economic outlook, a difficult mortgage market, and the potential for further house price falls," Bennett told reporters on a conference call.
"That will put pressure on credit markets for the foreseeable future."
A&L said 0.61 per cent of its mortgages were in arrears at the end of June, up from 0.49 per cent at the end of December but below the industry average, echoing signs of a modest deterioration shown by Lloyds TSB and HBOS last week.