Shares in part-nationalised Royal Bank of Scotland slumped as chief executive Stephen Hester warned there were "no miracle cures" for the business.
The group - 70%-owned by the taxpayer - edged back into the black with a £15 million profit for the first half, but Mr Hester said results may not "substantially improve" until 2011.
"There will be no miracle cures. Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds," he said.
Shares had risen strongly in the run-up to the results - briefly giving the taxpayer a paper profit on its £20 billion investment - but slumped as much as 16% following the figures.
This leaves the Government more than £2 billion in the red on its current stake in the bank.
After tax and other payouts such as dividends on the preference shares which were held by the Government, RBS slid to a net loss of £1 billion - and bad debt charges across the group as a whole hit £7.5 billion.
The figures mark a gloomy end to a week which began with £6 billion in combined profits from HSBC and Barclays.
Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said: "After an extremely promising start, the half-time banking reporting season has ended in some ignominy. It is difficult to draw many positives from these numbers, which even RBS management have conceded are poor."
Mr Hester is shrinking the bank's bloated balance sheet, splitting RBS into unwanted parts which would be wound up or sold, and those businesses which will be kept on.
The "core" bank made operating profits of £6.3 billion in the first half of the year, Mr Hester said, helped by a "creditable rebound" in the group's investment banking business. The non-core business lost £9.6 billion. But the surge in investment banking business is not expected to be sustained, and RBS has also been hindered by an exodus of its best staff.
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