Royal Bank of Scotland, Britain's second-biggest bank which last year led a takeover of ABN AMRO, reported a 9 percent rise in underlying profit, in line with expectations, and lifted its dividend by 10 percent.
RBS raised its writedown on assets tarnished by the impact of the U.S. subprime housing crisis and credit crunch to 1.6 billion pounds ($3.2 billion), excluding ABN.
It had previously flagged a writedown of 1.2 billion pounds through to the end of November, excluding a 250 million pound gain on the carrying value of debt held on the balance sheet.
The bank said it had also marked down the fair value of ABN's wholesale businesses by 900 million pounds due to its exposures to problem assets.
RBS said its underlying operating profit in 2007 reached 10.28 billion pounds, up from 9.41 billion in 2006 and the same as an average forecast from a Reuters Estimates poll of analysts.
The bank's shares closed 2 percent lower at 402 pence, despite the prospect of significantly higher cost savings from its purchase of ABN and growth in its UK retail arm.
"The synergies are higher, ratios are higher, it's a good set of numbers," one trader said.
RBS said its tier 1 capital ratio ended last year at 7.3 percent and its core tier 1 ratio was 4.5 percent, better than analysts had predicted.
It said improved financial returns after the ABN deal "will help to accelerate delivery of the group's capital regeneration commitments".
RBS shares have lost a third since the end of June as fears it faced a big writedown were compounded by concern it had bought ABN's wholesale bank just as capital markets slowed.
Its U.S. and UK retail banks also face stiff headwinds, raising concern that its capital position was tight.
Fred Goodwin, RBS chief executive, said he could sell assets this year to help its capital position, but it is not a forced seller.
"On asset sales, there probably will be odds and ends, but there are no plans to sell anything other than at a decent price," he told reporters on a conference call.
RBS said the deterioration in credit markets had resulted in significantly lower origination volumes for its Global Banking and Markets, although other areas of the investment bank arm had performed well, but it could take time for the turmoil to work through.
"We're not going to go back to where things were, we'll find a new equilibrium in due course. It doesn't feel like it's going to happen next week or next month, but there are tentative signs that we're moving in the right direction," Goodwin said.