Royal Bank of Scotland today reported a loss of £634m before tax in the third quarter, undershooting estimates by some way, while it also announced plans to create an "internal" bad bank to run down its book of bad loans.
The bank - 81%-owned by the Government - said it had identified £38bn of bad loans to put into an internal bad bank, up to 70% of which it expects it can whittle down over the next two years.
However, RBS said in light of its new plan, it expects to make a full year loss in 2013.
New chief executive Ross McEwan, who has just taken over from Stephen Hester, said: "In light of the new strategy to deal with our high risk assets we expect a significant increase in impairments in Q4 2013 which is likely to result in the Group reporting a substantial loss for the full year."
In reaction shares tumbled at the opening bell, down 3.9% at 353p by 8:05am.
RBS, along with its peers, has been caught up in the mis-selling of payment protection insurance (PPI).
Its latest results reveal it has set aside another £250m to cover PPI claims, and overall the numbers have left forecasters disappointed, missing expectations.
Overall its loss of £634m missed analyst forecasts of £440m profit before tax, while its operating profit of £438m also missed estimates of £800m.
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