Royal Bank of Scotland has reported a half-year loss after being hit by a £733m provision for its exposure to Greek government bonds.
RBS reported attributable losses of £1.4bn for the six months to 30 June and said it would cut up to 2,000 jobs in the next 12 to 18 months to downsize divisions such as investment banking.
Stephen Hester, chief executive of the part-nationalised bank, said RBS was still on track to meet operational targets as divisions such as insurance performed well, but said the current environment was worse than hoped.
"We are in an environment which is difficult and more worrying than any of us would have hoped at this stage. It makes it hard for us to grow the business," he told reporters at a press conference.
"Generally, we feel that things we can control we are doing well," he added. "We think the best thing we can do is keep our heads down and be calm and purposeful."
RBS radically wrote down the value of large Greek bond holdings that had been taken on by ABN Amro, the Dutch bank RBS acquired in 2008.
However, finance director Bruce Van Saun said RBS could recoup hundreds of millions of pounds from the bonds should their value rise.
"In our Greek position we have been conservative and we could make back about £275m of that," he said.
RBS also allocated £850m to cover claims for the mis-selling of Payment Protection Insurance (PPI).
Van Saun said the action on PPI and Greek bonds was dealing with "two big sins of the past".
He added that RBS now invested solely in the top ten sovereigns, including the US and UK.
"We have focused our liquidity portfolio on the big ten safest sovereigns; we are being properly cautious," he said.
The investment bank saw operating profits fall to £1.54bn in the past half year, from £2.25bn in the first half of 2010.
Fixed income and currencies trading income fell to £2.76bn from £3.17bn a year previously.
Hester said the job cuts would be focused on the investment banking division to cut costs.
"Within the investment bank there are some additional job cuts more than specifically relating to the ABN Amro integration," he said.
"We have to care a lot about costs in our business."
RBS, which is 84 per cent owned by taxpayers, reported a statutory loss before tax of £794m compared with a £1.2bn profit in 2010.