Plan to split banks 'wrong reform at the wrong time'

Stephen Hester, chief executive, called a partial split of investment banking and high street activities, proposed by the Independent Commission on Banking, "the wrong reform at the wrong time".

Unveiling a 678 million slump into the red in the second quarter of 2011, the bank said: "In RBS's view, ringfencing is unlikely to meet the tests set out in the commission's terms of reference.

"We believe it might actually result in increased risk whilst costs to banks and the broader economy could be significant.

"The case for going further than the international reform under way is unproven. The economic and market backdrop also suggest that further change may be ill-timed."

RBS has joined Barclays as the most high-profile critic of the ICB's initial recommendations in the spring for ringfencing high street and investment banking.

Hester's comment came as the bank, 83 per cent owned by the taxpayer, revealed losses for the first six months of 2011 came in at 794m compared with a 1.16bn profit in the same period of 2010. Its investment banking division saw half-time profits slide from 2.2bn to 1.5bn.

He confirmed a further "ballpark" 2,000 jobs could go at the investment bank - in London, the US, Hong Kong and the Netherlands - over the next 18 months, partly through the integration of ABN Amro, bought for 10bn at the height of the financial crisis. There was no mention of job numbers in the bank's 179-page statement.

RBS warned that wholesale banking "seems likely to experience activity levels below those targeted while markets remain anxious. The pattern of regulatory change will also impact industry outlook."

The bank was pushed into a loss by a 733m writedown on Greek government bonds amid the eurozone sovereign debt crisis and an 850m provision for the payment protection insurance scandal.

Losses at Ulster Bank in the first half also worsened to 566m from 314m.

On the implications of the stock market meltdown for bank lending and economic slowdown, Hester said it was important to stay calm but also to "be careful, not to try and be a hero". After yesterday's further 7 per cent slide in the Royal's shares the taxpayer is nursing a near 20bn loss on its holding in the bank.

The group's UK retail business, which includes NatWest, boosted profits to 1bn from 416m while UK corporate profits rose 130m to 838m. Profits in the American business rose 22 per cent.

Hester said despite the "complex macro environment" RBS still believed its five-year timeframe for the recovery of the bank - which it is halfway through - remained on track.