Lloyds TSB saw its profits fall by 8 per cent last year after being hit by the decline in stock-market values.
Pre-tax profits fell by £310 million to £3.55 billion, from £3.86 billion in 2000. Lloyds said the reduction was driven by adverse short-term fluctuations in investment earnings, which stacked up to £648 million.
The group has also reported a decline in profits in its high street banking division and in international banking - hit by the troubles in Argentina - although profits from mortgages increased.
Profits from high street banking in the UK fell by 18 per cent to £633 million. Lloyds says this reflects "substantial investments" to support future growth.
It says it invested heavily in improving customer service in its branch network and has seen a 14 per cent increase in product sales during the year.
Profits from mortgages rose by 7 per cent to £955 million, with net new lending of £3.9 billion, giving it an estimated market share of 7.1 per cent.
The group's insurance and investment division, which includes the Scottish Widows business bought in 2000, saw operating profits rise by 12 per cent to £1.6 billion.
Growth in sales of life and pensions offset a decline from unit trusts, caused by the downturn in the market during the second half of 2001.