A 5.9 billion pound ($11.4 billion) writedown on risky assets sent Royal Bank of Scotland to a first-half loss of 691 million pounds -- better than feared, but still one of the biggest losses in UK history.
RBS, Britain's second-biggest bank, said on Friday the loss was "a chastening experience" but it was building a comfortable capital cushion, reducing risk and pushing ahead with sales of assets including its insurance business as planned.
"I'm disappointed and numbed by it, but I'm also galvanized," said Chief Executive Fred Goodwin, saying his task was not to let writedowns overshadow some strong performances during tough conditions.
RBS shares closed up 3.2 percent at 240.50 pence, one of the top performing UK stocks, as analysts said its capital ratio came in higher than expected and underlying earnings were resilient in the face of faltering economies.
"It may have drawn a line under the big credit losses, the capital raising is done and there are synergies to come through from ABN ... but the underlying business is reflecting a tough market, particularly in the United States," said Mike Trippitt, analyst at Oriel Securities.
RBS swung to its first-ever reported loss from a 5.1 billion pound profit a year ago after being hit by the writedowns on credit products.
This was in line with previous guidance and was partially offset by an 812 million pound reduction in the value of debt it carries.
It had been expected to report a 1.2 billion pound loss, based on the average of five analysts' forecasts.
RBS said difficult conditions in financial markets were likely to be compounded by a deteriorating economic outlook.
Bad debts on mortgages and other loans jumped 58 percent in the six months to 1.5 billion pounds, mainly due to charges in its Global Banking and Markets (GBM) investment bank arm and U.S. retail and commercial banking.
RBS has had a troubled year and in June it was forced to raise 12 billion pounds in the biggest-ever rights issue, to repair a balance sheet stretched by last year's purchase of parts of ABN Amro and the writedowns.
Asked if he was the right person to lead the bank after some calls for him and his chairman to step down, Goodwin said: "We're in the middle of a financial markets crisis...the industry is in a tight place, and as a major participant in the industry we are in a tight place. We are not alone in having taken writedowns."
"I won't do this job forever but right now you will find me extremely galvanized to do the task at hand," he said at a press conference.
RBS, which has written down $16 billion, has been one of the banks hardest hit by the credit crunch, but it is not alone.
A year into the crisis, banks have lost over $400 billion on assets tarnished by the U.S. subprime housing crisis, forcing them to raise billions from shareholders and outside investors.
Citigroup has written down over $57 billion.
RBS said its core tier 1 capital ratio was 5.7 percent at the end of June and will be above 6 percent by the end of the year, even if it does not sell its insurance arm.
Goodwin said the bank was talking to "a number" of potential buyers for RBS Insurance, which is valued at 5 to 6 billion pounds, but he was not reliant on a sale to reach higher capital targets and wouldn't sell at a knock-down price.
RBS said its underlying profit fell 3 percent to 5.1 billion pounds and underlying income edged down 1 percent.
The riskier backdrop is allowing banks to push through higher charges, however, and RBS's net interest margin improved to 2.09 percent in the first half from 1.96 percent.
The bank said it had taken "decisive action" to shrink its balance sheet and reduce risk, especially in GBM, where it had cut its asset book by 157 billion pounds since March, mainly on debt securities and reverse repurchase agreements.