Royal Bank of Scotland posted a £3.6 billion loss but said it will still pay about £1.6 billion in bonuses to its staff as it walks a "tightrope" between public outrage and business demands.
The 2009 shortfall at the part-nationalised lender was better than expected and shares surged around 7% as a result.
The figure compares with a record £24.3 billion deficit the year before - the largest in UK corporate history - as the bank was sucked into the maelstrom of the financial crisis.
RBS, which is now 84% taxpayer-owned after a series of bail-outs, has attracted huge controversy about the level of planned bonuses at its investment arm.
UK Financial Investments (UKFI), the body set up to manage the Government's stakes in banks, has given its blessing to the payments, understood to be around £1.3 billion for the investment banking division and about £300 million elsewhere in the business.
Chief executive Stephen Hester said the level of the bank's rewards pot was set by the board and was not "imposed upon us from outside", although he added that there had been a need to balance external pressures with the need to retain key workers.
"I do believe because of the nature of the tightrope that we are walking we will continue to lose staff," he said. And he has said he believes the top-performing staff who left the company in last year's exodus could have added £1 billion to profits.
Mr Hester said the intense levels of scrutiny over the issue of remuneration were "crosses we have to bear".
The RBS boss, who waived his own bonus for 2009, said he had done so to try to take the heat out of the bonus issue.
A spokesman for the Treasury said RBS is "leading the world in pay restraint among banks".
