Britain's second-largest bank has warned it expects to write-off £950 million as a result of its exposure to bad debts in the US mortgage market.
However analysts said the expected write-down revealed by the Royal Bank of Scotland (RBS) was lower than had been anticipated.
The finance group will take a further £300 million hit as a result of its recent takeover of Dutch bank ABN Amro.
RBS is the latest bank to reveal its expected losses from the crisis in the US subprime mortgage market. Rising default levels in the specialist housing sector, which makes home-loans available to those on low incomes or with poor credit ratings, have seen a number of the world's financial institutions warn of losses related to mortgage-backed loans they have bought.
The subprime situation in the US has also prompted a global credit squeeze, with banks increasingly reluctant to lend cash to one another, individuals and companies as a result of uncertainty about the full extent of the problem.
Nonetheless, RBS said today it was confident its 2007 operating profit and earnings would be "well ahead" of market consensus.
Commenting on the group's recent performance, RBS chief executive Sir Fred Goodwin said: "Rarely have the diversity and quality of the group's business platform been more important in enabling us to deliver consistently strong performance.
"Although some of our businesses have been affected by the challenging market conditions, the group's underlying earnings trajectory has remained comparatively unaffected," he added,
The bank also stressed the integration of ABN was progressing well and said it expected to report better financial returns from the takeover than originally forecast when it bid for the company.
RBS secured ABN as part of a consortium in October, with the completion of its 71 billion (£49 billion) acquisition of the firm following a bitter bidding war with rival Barclays.