RBS set for biggest ever loss

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RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a hit of between £15 billion and £20 billion.

In addition, the bank said credit and market conditions in the fourth quarter of the year meant it achieved full-year losses of between £7 billion and £8 billion.

The final haul will easily exceed the deficit of £15 billion reported by mobile phone group Vodafone in 2006.

Royal Bank of Scotland also said it had reached agreement with the Treasury to replace £5 billion of preference shares with new ordinary shares, effectively increasing the Government's stake in the bank.

The move will remove the annual cost of preference share dividends of £600 million and is expected to bolster the group's cashflow. It said it intended to increase lending across its UK businesses by £6 billion, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.

Chief executive Stephen Hester, who took over from Sir Fred Goodwin towards the end of last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard.

He added: "We are making progress in recognising excess risk and dealing with it. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."

As well as the core losses of between £7 billion and £8 billion, RBS said preliminary estimates pointed to an estimated write-down in the region of £15 billion to £20 billion. RBS stressed this was a non-cash item and had no bearing on its regulatory capital position.

It added that its retail and commercial banking businesses in the UK remained profitable, offset by losses in its global banking and markets division.