Royal Bank of Scotland slid to a pretax loss of 678 million pounds ($1.1 billion) in the second quarter, hit by losses on Greek government bonds and Irish customers still struggling to repay loans.
The loss compared with a profit of 1.17 billion pounds a year ago and came as impairments on bad loans rose to almost 2.3 billion pounds from 2 billion in the first quarter of this year but eased from 2.5 billion pounds a year earlier.
RBS wrote off 733 million pounds to cover anticipated losses on its 1.45 billion pound Greek bond portfolio.
It also said the impairment charge at its Ulster Bank operations in Ireland, where consumers are grappling with a housing market collapse, was 1.25 billion pounds, just 49 million pounds better than in the first quarter.
Earnings at RBS, 83 percent owned by the government after a bailout during the credit crisis, were also undermined by an 850 million pound provision to cover the costs of compensating customers mis-sold payment protection insurance by banks.
Overall that left RBS with an 897 million pound net loss, worse than the 424 million pounds forecast by analysts at WestLB and broadly in line with the 800 million predicted by brokerage Keefe, Bruyette & Woods.
The result followed a grim set of results from larger rival Lloyds Thursday when it reported a first half pretax loss of 3.25 billion pounds on the back of mis-selling charges and losses in Ireland.
Shares in Lloyds slid on the news, making any profitable sell down of the government's 41 percent stake acquired after a credit crisis bailout an even more distant prospect.
RBS stock, which closed at 30.28 pence Thursday, is also a long way short of the 49.9 pence at which the British taxpayer effectively bought its stake.
Group income in the second quarter fell 5 percent versus a year earlier to just under 7.8 billion pounds as the bank pointed to a drop in revenue at its GBM investment banking operations, citing heightened risk aversion among clients.
GBM seems likely to experience activity levels below those targeted while markets remain anxious, the bank said in a statement.
The bank incurred lower staff costs in GBM, however, helping second quarter costs fall 6 percent from the previous quarter.
RBS has cut 27,500 jobs, including thousands of investment bankers. It has scaled back its GBM business, reducing its client base to 5,000 from 26,000 before the financial crisis and exiting 12 countries. ($1 = 0.613 British Pounds)
(Writing by Paul Hoskins)