Royal Bank of Scotland, majority-owned by the taxpayer, said Monday it expected an annual loss of up to 28 billion pounds linked to the credit crisis and its part-takeover of Dutch lender ABN Amro in 2007.
"Credit and market conditions in the fourth quarter of 2008 were particularly challenging and RBS estimates the group will report for full year 2008 an attributable loss, before exceptional goodwill impairments, of between 7.0 and 8.0 billion pounds," RBS said in a trading update.
It added: "The group is currently reviewing the carrying value of goodwill and other purchased intangibles on its balance sheet as part of the finalisation of the year end results. Preliminary findings indicate an estimated impairment charge in the region of approximately 15 to 20 billion pounds."
The additional losses are largely linked to the value of RBS assets secured after a consortium takeover of Dutch banking group ABN Amro in 2007.
Even at the low-end of its estimated losses -- 22 billion pounds (24 billion euros, 32 billion dollars) -- Royal Bank of Scotland was on course to post the biggest loss in British corporate history.
The record is held by telephone giant Vodafone, which recorded a loss of 15 billion pounds in 2005/6 after being forced to revalue assets.
Meanwhile Monday's announcement by RBS, ahead of full results on February 26, sent the group's share price sliding about 22 percent to only 27 pence on London's FTSE 100 index, which was more than two percent higher overall.
The British government separately said it would convert its preference shares in Royal Bank of Scotland obtained during October's bailout and worth five billion pounds into normal shares.
This would mean the bank would no longer have to pay a fixed dividend to the government, thus freeing up cash to lend. In return, the taxpayer's stake in the bank would increase to almost 70 percent from 58.
"The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks," the bank's group chief executive Stephen Hester said on Monday.
"We are making progress in recognising excess risk and dealing with it. Significant uncertainties and risks inevitably remain. In this context, the support we are receiving from government benefits all our stakeholders and enables us to provide more customer support in return."
The Scottish bank on Monday said that its retail and commercial banking businesses in Britain remained profitable, offset by losses in its global banking and markets division.
In a bid to raise cash, Royal Bank of Scotland last week sold its stake in Bank of China for 1.6 billion pounds.
RBS, alongside HBOS and Lloyds TSB, which are merging, has been a leading beneficiary of the government's banking sector bailout, announced last October, after the global credit crunch savaged markets and economies worldwide.
The bank has meanwhile faced criticism over its leading role in the takeover of ABN Amro for 71 billion euros (100 billion dollars). The consortium's bid was sealed before the credit crunch slammed global markets.