Royal Bank of Scotland boss Stephen Hester today warned the part-nationalised bank's long haul back to health had only just begun as shares in the firm tumbled.
RBS - 70 per cent owned by the taxpayer - edged back into the black with a £15 million pre-tax profit for the first half of 2009, but Mr Hester said results may not "substantially improve" until 2011.
By 2013, the chief executive wants to slash the bank's reliance on wholesale funding by £150 million, improve its flagging credit rating and ensure loans are covered by deposits.
But Mr Hester added: "There will be no miracle cures. Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds," he said.
Shares in the NatWest owner had risen strongly in the run-up to today's results - briefly giving the taxpayer a paper profit on its £20 billion investment - but slumped as much as 16 per cent following the figures.
Every penny the shares fall below the 50.5p average price paid by the Government costs the taxpayer almost £400 million.
After tax and other payouts such as dividends on the preference shares which were held by the Government, RBS slid to a net loss of £1 billion. Bad debt charges across the overall group hit £7.5 billion.
The figures mark a gloomy end to a week which began with £6 billion in combined profits from HSBC and Barclays.
Lloyds Banking Group posted a £4 billion loss after a £13.4 billion hit from bad debts, while Northern Rock lost £724 million in the first half of 2009.
Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said: "After an extremely promising start, the half-time banking reporting season has ended in some ignominy.
"It is difficult to draw many positives from these numbers, which even RBS management have conceded are poor."
Stephen Timms, Financial Secretary to the Treasury, said the bank would be successful "in due course".
"That will be reflected in the share price in due course and there will then be a benefit for taxpayers from the investment that's been made....
"But I think rescuing the bank from collapse was a very important step as well, to protect the interests of all of us."
Mr Hester, who is on a £9.6 million pay and shares package to turn RBS around, is shrinking the bank's bloated balance sheet.
He is splitting the group into unwanted parts which would be wound up or sold, and those businesses which will be kept on.
The "core" bank made operating profits of £6.3 billion in the first half of the year, Mr Hester said, helped by a "creditable rebound" in the group's investment banking business. The non-core business lost £9.6 billion.
But the surge in investment banking business which helped the bank is not expected to be sustained, while it has also been hindered by an exodus of its best staff.
"We know to our cost, having suffered significant resignations of valuable staff members this year, that we cannot ignore competitor pay practices or we will fail as a business," Mr Hester said.
The bank is still in talks over putting £316 billion worth of toxic bad debts in a taxpayer-backed insurance scheme - for which it will bear the first £19.5 billion in losses.
The complex negotiations over its participation in the Asset Protection Scheme are subject to state aid approval from the European Union and are unlikely to be completed before the autumn.
The group's UK retail banking business, which includes NatWest, saw bad debt charges jump 87% to £824 million, causing a 90% slump in operating profits to £53 million.
RBS has shed 16,000 staff since last October, of whom 10,000 have been in the UK.
But Mr Hester said he was optimistic over the bank's long-term prospects despite the task ahead.
He said: "The 'new RBS' will be a very different bank than before, in both what we do and the way we do it, and rightly so."
Panmure Gordon analyst Sandy Chen said: "Management is doing the right thing in undertaking a radical restructuring of the group, but it is burdened with a balance sheet built up under very different macro (economic) conditions."