Value of bailed out banks RBS and Lloyds drops by £30bn

Taxpayer losses on the stakes in Royal Bank of Scotland and Lloyds Banking Group widened to £30bn yesterday on a rollercoaster day for bank shares.

As the huge stock market sell-off continued apace, RBS felt the heat after reporting a £794m first half loss, knocked by a a £733m hit on Greek bonds and an £850m provision for payment protection insurance compensation.

Shares in the bailed-out bank, in which the taxpayer owns an 83% stake, fell to 24p as the market opened, before hitting a high of 30p and eventually ending 7% lower at 28p. The moves were so violent that between 8:06am and 8:53 they were suspended three times, for five minutes each time. The taxpayer breaks even when the shares hit 51p so at last night's close, the paper loss was almost £20bn

Lloyds was also suspended twice, eventually closing 6% lower at 32.8p, implying a loss of almost £10bn to the taxpayer. Taxpayers have invested a combined £65bn in the shares of the two banks. Barclays was also suspended just as crucial US employment data was released. It closed 5% lower at 186p.

As RBS rounded off the interim reporting season for the banking sector, the chief executive, Stephen Hester, conceded that the fall in the share price would make it more difficult for the government to extricate itself from its holding of 90.6bn shares as quickly as hoped. He has talked to investors around the world in preparation for a sale but admitted that the slowdown in the UK economy and the problems in the financial markets were likely to impede progress a little.

"We're in an environment which is tougher and more worrying than anyone would have hoped for at this stage," Hester said.

RBS moved into the black a year ago when it reported £1.1bn of pre-tax profits, and Hester conceded that about 2,000 jobs could be lost at the investment banking arm in the next 18 months. He blamed the downturn in the markets and the continuing integration of ABN Amro, the Dutch bank whose purchase crippled RBS during the last crisis.

The share price is also being affected by the ongoing work of the independent commission on banking and Hester reiterated his opposition to the idea of ringfencing high street operations from "casino" investment banking arms.

"We believe [ringfencing] 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 reforms under way is unproven.

"The economic and market backdrop also suggest that further change may be ill-timed," he said. Hester also had a message for the eurozone "to give confidence that its [member] governments will play their proper role in providing stability and liquidity to other governments."