Part-nationalised Royal Bank of Scotland has already eaten through nearly half the £60 billion "excess" on toxic debts insured by the taxpayer, it emerged today.
RBS agreed this week to put £282 billion in bad loans into the Asset Protection Scheme (APS), under which it shoulders the first £60 billion in losses on the debts.
But third-quarter results released today showed RBS - which will be 84% state-owned under the terms of the APS - used £26.6 billion of the buffer by the end of June.
A further £3.2 billion in loan losses announced for the third quarter - mostly on APS assets - is likely to take RBS's "first loss" close to £30 billion.
The figures came as RBS unveiled a pre-tax loss of £2.1 billion for the July-September period - down from a £1.9 billion profit a year earlier.
The bank has been dragged into the red by continuing credit losses in parts of the business it is winding down or selling, although bad debt charges are stabilising.
The taxpayer is liable for 90% of any hit above the £60 billion under the APS although the recent tentative signs of improvement make losses less likely. RBS is taking a bigger first loss than originally planned under the APS in return for a smaller fee.
Chief executive Stephen Hester, who hopes to return the bank to profit in 2011, said today he was "upbeat but realistic" about the tough road ahead for RBS.
The bank said bad debts were "plateauing" but Mr Hester warned: "We owe it to everyone to be realistic and transparent."
He said: "Economic recovery is likely to be slow and the pain of economic adjustment will take years to subside. Our business will reflect these issues.
"Profitability in our core businesses will recover fully only when our own actions are also complemented by more normal interest rates and bad debt experience."
At the operating level, the bank's losses were less than the second quarter of this year, due to the non-core parts of the business, where losses shrank from £4.98 billion to £2.72 billion.
The NatWest owner added that retail banking profits in the UK, Ireland and the US remained "subdued" with deposit margins under pressure due to record low interest rates.
The bank's cost-cutting programme has also delivered further efficiencies but RBS warned of more job losses as it adapts to "changed market realities".
RBS announced another 3,700 job losses this week and Mr Hester said the group was "more than halfway through" its major restructuring programme.
The company lent £15.2 billion to businesses under loan commitments during the third quarter, although demand for lending is "muted" and customers still have access to £27 billion in undrawn facilities.
RBS is being forced to sell off its Churchill and Direct Line insurance business, more than 300 Williams & Glyn's branches and parts of its investment banking business in return for state support.
The businesses on the block generated around £1.1 billion in operating profits for RBS last year.Reuse content