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RBS is warned by government on bonuses after $5B loss

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Royal Bank of Scotland (RBS) reported an annual loss of £3.47 billion ($5.39 billion) in 2014 after booking a £4 billion writedown in the value of U.S. offshoot Citizens.

The bank also confirmed that it will appoint Sir Howard Davies, former head of the now defunct Financial Services Authority, as its new chairman - an appointment first reported earlier this week.

Chancellor of the Exchequer George Osborne, representing the bank's biggest shareholder, the U.K. taxpayer, warned Davies: "I would expect that, as in the past, no executive directors or members of the executive committee will receive bonuses, despite improved profitability."

The bank's bonus pool for 2014 was £421 million, down from £536 million in 2013.

Ross McEwan, the bank's chief executive, will hand back a share award worth £1 million. He said in a statement that he does not want his pay "to be a distraction from the task of building a great bank".

Given that he also said there will be "substantial" job losses elsewhere in the bank, taking the bonus might have looked out of touch.

RBS, which is 80 percent owned by the U.K. government, has seen a recent recovery in its share price after a drastic restructuring program.

However, some of the bank's historic issues remain, and it recently suspended two more employees over the foreign exchange rates rigging scandal.

Much of McEwan's role involves unwinding the aggressive acquisition strategy pursued by one of his predecessors, Fred Goodwin.

As part of this, he confirmed on Thursday to reporters: "This marks the end of a standalone global investment bank model for RBS."

At the end of the restructuring, RBS will operate in 13 countries, down from 38 at the height of its expansion.

- By CNBC's Catherine Boyle.