Royal Bank of Scotland's chief executive, Sir Fred Goodwin, predicted yesterday that the economic slowdown would last for at least another year, but that the UK would avoid a recession.
"It's difficult to see it will take less than 12 months to work its way through. There's still more bad news than good news," Sir Fred said.
Sir Fred said that the economic correction would be somewhere between "orderly" and "disorderly", with a 5 per cent fall in house prices this year representing an orderly change.
He said RBS, which is Britain's biggest lender to companies, was "open for business", but that the bank was wary about lending in current conditions.
Britain is going into the slowdown from a position of strength, with house prices high and employment high and interest rates low, Sir Fred added. "We are seeing a slowdown, but I think it will stop short of a recession," he said.
In a trading statement RBS said many of its businesses had produced a good performance so far this year, but that results had been held back by a deterioration in credit markets. The bank said its estimate of £5.9bn for credit-related writedowns this year was unchanged.
Fox-Pitt, Kelton analysts said that the unchanged trading performance should be taken as good news. But RBS's shares plunged 9 per cent to 212.25p on a terrible day for banking stocks as concerns about the economy and rumours of weakness at US investment banks spooked investors.
RBS has just completed its record £12bn rights issue and is trying to sell RBS Insurance and other businesses to boost its capital buffer into the downturn.
Sir Fred said he was relieved that the rights issue, which angered many investors, was behind him. There have been doubts about whether RBS can get the £7bn it wants for the insurance business, which includes Direct Line and Churchill.
But Sir Fred said he was confident of a sale and that RBS's capital position would be strong enough without a sale.
"I'm glad to have it done, and the money should be in the bank tomorrow ... so it feels a good place to be," Sir Fred said.Reuse content