Mortgage lender Bradford & Bingley has become the latest victim of the credit crisis as profits nearly halved during 2007. Bad debts trebled and investments plunged in value.

The company saw pre-tax profit fall 49% to £126 million. It incurred several write-downs including £142.1 million on investments hit by the credit crunch.

It lost £22.5 million as homeowners failed to keep up on their mortgage repayments.

Against these negatives, B&B insists that key markets remain healthy, particularly in buy-to-let mortgages. It said tenant demand is it the strongest level for five years.

Steps have been taken to mitigate the poor performance during 2007. It sold £4 billion of loans in November to boost cash reserves and tighten its focus on lower-risk lending.

The group said it had largely weathered the storm in global credit markets during the second half of 2007 through a wider range of funding sources, as well as moves such as the sale of £4 billion of loans in November last year to boost cash reserves, and concentrating on lower risk lending.

Margins have come under pressure from higher funding costs, prompting B&B to raise mortgage rates during the second half of 2007.

Chief executive Steven Crawshaw said B&B had 'performed well in a challenging year for the sector'. He added: 'We believe the fundamentals that drive our specialist markets remain strong, and expect the buy-to-let market to continue to grow at a faster rate than the mainstream mortgage market.'

Shares in the group fell over 10% to 218p in early trading on Wednesday. Other banking stocks were dragged down on B&B's weakness, including Alliance & Leicester which fell 4% to 578.5p and Northern Rock, down 6% to 99p.

Investors are in line for a dividend yielding 8.6%, but there are concerns that B&B will not be able to sustain this rate. The dividend is 0.7 times covered by earnings. This means it is paying the shareholder reward out of retained earnings. Dividend cover less than 1 times usually sends alarm bells ringing in the City. Unless profits improve dramatically during 2008, B&B could be forced to reduce its dividend payment.