RBS chief: Sorry, I've just lost you £691m

It is the largest fall into the red by a high street bank and comes on the eve of the "official" anniversary of the start of the credit crunch.

Royal Bank of Scotland, which owns NatWest, said the first half loss was largely caused by a near £6 billion write-off of bad debts related to the collapse of the American sub-prime mortgage market.

RBS's £4.2 million-ayear chief executive, Sir Fred Goodwin, said: "It has been a chastening experience and reporting a pre-tax loss of £691 million is something I and my colleagues regret very much."

The RBS group has 15 million British customers. The loss caps a traumatic fortnight for the industry. Yesterday Barclays said its profits had fallen by 33 per cent, while Lloyds TSB's slumped 70 per cent, Halifax Bank of Scotland fell by 72 per cent and HSBC by 28 per cent.

Sir Fred said the first half of the year "has been as difficult an operating environment as we have encountered for some time ... the results we have published today demonstrate progress in a number of important areas, and it is all the more unsatisfactory therefore, that they record a loss as a result of our credit market write-downs".

The loss compares with a profit of £5.1billion a year ago, and is the first time that the Edinburgh bank has plunged into the red in its history.

Although it was not quite as bad as City analysts had been expecting, the fall into the red means Sir Fred and his chairman Sir Tom McKillop will face a struggle to keep their jobs.

Sir Fred said he and the board always felt under pressure to deliver good results, but stressed the current team was best placed to take the group through the turmoil. Earlier this year the bank was forced to raise £12 billion through a share issue in the City to shore up its balance sheet and last autumn it bought Dutch bank ABN Amro for £48 billion in what was seen as a "top of the market" acquisition. Over the past 12 months the shares have fallen by more than 50 per cent.

The loss will also anger ordinary bank branch customers who contributed £1.087 billion profit to the group, up nine per cent, in the first half of the year as £6 billion was being "thrown away" through high risk investments in the credit markets.

The loss dwarves the previous record of £242 million set by Barclays in 1992 after the recession of the early Nineties but is less than the deficit recorded by Barings in 1995 following the huge trading losses built up by "rogue trader" Nick Leeson.

Earlier this week the governmentowned Northern Rock declared a £585 million loss.

There was little sign of optimism from Sir Fred that the impact of the credit crunch might soon be over.

He warned: "The difficult conditions in the financial markets look set to be compounded by a deteriorating economic outlook, with consensus forecasts pointing to slowing growth in many countries."

David Buik of City bookmaker BCG Partners said: "So the net loss was not as bad as expected at net £691million with £5.9 billion write-downs. But the tier Capital One ratio at 5.7 per cent is unacceptable and therefore RBS may require a further £4 billion of fresh capital. This requires some explanation." The bank said bad debts on mortgages and other loans jumped 58 per cent in the six months to £1.5 billion and it was seeing signs of "increased strains" among customers running small businesses.