RBS announces its fourth consecutive annual loss

Bank dealing with “the largest balance sheet risk time bomb ever assembled in history”.

RBS has announced a loss of £2bn for 2011, nearly double the £1.1bn loss the bank made in the previous year. It is the fourth annual loss the bank has posted since its government bailout in 2008.

Sir Philip Hampton, RBS chairman, has suggested that the bank must now be run on "commercial grounds" if it is ever to return to profit and pay back the British taxpayer, who own 82 per cent of the bank.

Speaking on the Today programme, Stephen Hester, the chief executive of the bank, said RBS were "ahead of course" with its plan to make the bank profitable again. Echoing the sentiments of Hampton, he also said RBS needed to be allowed to run commercially otherwise the government would "never get its money back."

We have effectively two fulltime jobs to do. We have to run a very big and complicated bank competing against others, like Barclays and HSBC and serving 30 million customers and doing that is already a very profitable activity.

We made £6.1bn, roughly the same as Barclays made, in running our core banks last year with a return on equity of over 10 per cent. There are many good performances notwithstanding the fall in the investment banking part of our business.

The second job that RBS had was to diffuse the largest balance sheet risk time bomb ever assembled in history and that creates losses. The irony is that the faster and more successful we go in diffusing that balance sheet time bomb, the greater the losses, even though it's a desirable thing to do.

In three years since I took over, we have reduced the balance sheet of RBS by £700bn of assets. Which, to put in context, is something like twice the size of the total debt of Greece.

The losses, ironically, are a measure of the immense progress we've made in cleaning this bank up. When I joined I said it was 5 year task, I still think it's a 5 years task. We are three years through that.

The turnaround of this bank is ahead of course.

Despite the heavy losses, the bank plans to reward its 17,000 investment banking staff with bonuses, a decision which has infuriated Union officials. Despite branch staff being restricted to a 1 per cent pay rise, staff in the investment arm of the business will share a £390m bonus pool. Hester defended the decision, claiming:

Bonuses in the investment bank, even adjusted for some salary moves, are down by more than profits.

Bonuses in our investment bank give RBS shareholders roughly £2 in profit for every unit of bonuses compared to the £1 from Barclays. In other words, we're making half the profits but on a quarter of the bonuses.

Unit labour costs are falling substantially. Overall bonuses for the group, including the investment bank, are down 42 per cent. For every pound of profits that have been delivered from the core bank in RBS, 10p is going to the staff in bonuses, and 90p ultimately to shareholders but in the near term to paying down the losses of the rest of the bank.