A&L maintains that the figures are in line with expectations made at the time it was taken over by Spanish banking giant Banco Santander in July last year.
The lender says it began to reduce customer loans and advance even before the acquisition.
As a result residential mortgage balance dropped £5bn from 2007 levels to £37.7bn, with unsecured personal loans falling by £0.5bn to £3.4bn.
On a trading basis profit before tax was £201m compared to £532m in 2007.
Retail customer deposits grew by £1.7bn for 2008, some £1.3bn which was placed following the Santander acquisition.
Non-trading costs for A&L went up massively from £133m in 2007 to £1.49bn.
Despite the huge increase to costs, the combination of the three UK businesses under the Santander umbrella – A&L, Abbey, and Bradford & Bingley – means a combined market share in excess of 10% for branches, savings, current accounts and mortgages.
Antonio Horta-Osorio, chief executive of A&L and Abbey, says: “2009 will undoubtedly be a challenging year.
“Despite this we are cautiously optimistic about our business prospects and have begun to benefit from being part of the Santander group, which means that our UK business is well-positioned for the challenges and opportunities ahead.”