Alliance & Leicester has bucked the trend of growing earnings at UK banks by reporting profits down 15%.

The former building society, undergoing a strategy shake-up, reported profits down �38m to �208m for the first half of the year.

A campaign to attract 550,000 new customers in 2001 looked to be running behind schedule, with 240,000 signed up by the end of June.

And the amount of customers' cash held on deposit was, at �16.2bn, only �0.2bn higher than in December.

Takeover rumours

The figures come as other banks are reporting record profits, with Royal Bank of Scotland on Tuesday predicting that earnings for the first six months of the year would hit �2.75bn.

And they follow renewed speculation that A&L, which was floated in 1997, may become a takeover target.

National Australia Bank, owner of Clydesdale and Yorkshire banks, was tipped as a potential suitor.

More recently, Abbey National and Lloyds have been seen as possible bidders, after proposals to merge the banks were scuppered by the government.

A&L executive chairman John Windeler, in Friday's profits statement, took the unusual step of preparing shareholders for a takeover bid.

"We have consistently said that, as a board, we have a duty to consider serious offers should any occur which clearly represent superior returns to our shareholders," he said.

'New momentum'

But the bank restated that a shake-up unveiled last year, involving the axing of 1,500 staff, was already beginning to reap rewards.

"We are growing our franchise, we are retaining customers for longer, and we are selling more to existing customers," Mr Windeler said,

"There is a new momentum in Alliance & Leicester."

The bank credited internet banking operations for helping achieve 11% increase in the number of small business clients opened during the six months, compared with the first half of 2000.

"In recent months 50% of new accounts have been for internet banking accounts," group managing director Peter McNamara said.

And the bank reported buoyant mortgage business, with lending to homebuyers rising 64%.

"Our performance in the residential mortgage market has been reenergised," Mr McNamara said.

In the City, Alliance & Leicester shares stood 15.5p down at 805.5p at 0330 GMT (1430 BST).