RBS bad debts may hit £12bn in 2009

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RBS, which is 70.3% owned by the taxpayer, posted loans losses of £2.9 billion for the first quarter of 2009, but directors said full-year bad debts could be "at least" four times as high.

The warning came as chief executive Stephen Hester sought to dampen expectations of a swift recovery, saying he had seen no "green shoots" on sour loans and that this year and next would be "very tough".

The downbeat comments - a day after fellow struggler Lloyds Banking Group said bad debts could jump more than 50% - underlined the growing impact of recession on banks even though the danger of collapse has passed.

RBS posted a pre-tax loss of £44 million as record income driven by its buoyant investment banking business was offset by the group's surge in bad debts and the squeeze of record low interest rates on margins.

After tax, dividend payouts to the Government, and payments to partners on the sale of its Bank of China stake, losses widened much further to £857 million.

Under this measure, RBS posted a UK record £24.1 billion loss last year after writing off more than £16 billion on its disastrous deal for Dutch bank ABN Amro.

Markets had been braced for much worse and shares in RBS rose 14%, but Mr Hester warned against over-exuberance - saying the bank's path back to health "will take years not months". He added: "I think it is very important that people do not get carried away in the short term with over-optimism."

The chief executive, who is undertaking a mammoth restructuring of the bank to shrink the RBS and reduce its risks, also declined to predict when the bank would return to profit. "It's not really in our hands, it's in the hands of the economy and what it does to our loan books," he said.

Last month RBS announced up to 9,000 job cuts - half of which will fall in the UK - bringing the total axed in December to more than 15,000. Mr Hester, who completed the clear-out of senior directors from former chief executive Sir Fred Goodwin's regime this week, said more cuts were on the way, but declined to give further details.