Alex Salmond insisted that it was only a matter of time before Royal Bank of Scotland returned to being “highly profitable

Alex Salmond insisted that it was only a matter of time before Royal Bank of Scotland returned to being “highly profitable and highly successful” after the company yesterday posted its first loss in 40 years as a public company.

The Scottish First Minister, a former RBS employee, said that the bank remained “one of the highest-performing financial institutions in the world”. It posted pre-tax losses of £692million for the first half of this year - the second biggest loss in British banking history. For the same period in 2007 it made record profits of more than £5billion.

Amid concern over the impact on the Scottish economy and the bank's 8,500 staff in Edinburgh, Mr Salmond remained upbeat about its prospects. “Today's headline results, though better than many analysts predicted, show the full impact of adverse developments in the international financial markets, and the huge writedowns which are the consequence,” he said.

“I am certain that the Royal Bank of Scotland will overcome current challenges to become both highly profitable and highly successful once again.”

Sir Fred Goodwin, the RBS chief executive, brushed aside calls for his resignation but described the loss as a “chastening experience”. He said: “We are focused on doing what is right for our shareholders and to steer the business through a difficult time.”

Sir Fred and his chairman, Sir Tom McKillop, have been under pressure since RBS led a consortium of firms in the £49billion purchase of the Dutch bank AMN Amro last year, when the credit crunch was already starting to bite. Since then RBS's share price has fallen by two thirds, and it has announced the biggest rights issue in British banking history by asking shareholders for £12billion. Both Sir Fred and Sir Tom have been accused of overpaying for the Dutch bank.

Yesterday's interim results were significantly better than forecasts of a loss of up to £1.5 billion, but the figures will heighten anxiety among staff at the bank's Edinburgh headquarters. RBS is the largest private sector employer in the Scottish capital and has already announced big job cuts.

RBS, whose vast portfolio includes NatWest bank and Direct Line insurance, said that its results were skewed by £5.9 billion of asset writedowns after the credit crunch slashed the value of many of its mortgages.

On an underlying basis - discounting the effect of the credit market writedowns- profits for the six months to July were £5.14 billion, compared with £5.32 billion the year before.

Sir Fred said: “The first half of 2008 has been as difficult an operating environment as we have encountered for some time. The results we have published today demonstrate progress in a number of areas, and it is all the more unsatisfactory, therefore, that they record a loss as a result of our credit market writedowns. We are determined to ensure that the inherent strengths of the group's diverse business model are not obscured again.”

Expressing concern over the repercussions, Stewart Taylor, of the property firm CB Richard Ellis, said: “RBS has a significant equity stake in developers in Edinburgh. If RBS is making losses and cutting costs, they will want to pass on some of the pain to these firms.” Ron Hewitt, chief executive of Edinburgh Chamber of Commerce, said that the losses were likely to be a “temporary blip”.

Times Recommends

• Catalogue of failings ‘leaves others at risk’
• Tourists told to stay away amid Venice floods
• Google generation has no need for rote learning