Royal Bank of Scotland (RBS) has reported its fifth annual loss since it was rescued by the government in 2008.
The bank made a pre-tax loss of £5.17bn, hit by a series of charges. The year before, it lost £766m.
In a statement, the bank said it had been a "chastening" year, during which it sought to "put right past mistakes".
It has set aside money to cover PPI mis-selling, the mis-selling of interest rate swaps and its fine for attempting to fix Libor.
RBS is 81% owned by the government.
Much of the pre-tax loss came from a £4.6bn accounting charge for changes in the value of its own credit, which is a measure of how much it would cost to buy back its own liabilities.
The bank has taken a £5bn charge for loan impairments, which are write-offs to cover loans that are unlikely to be repaid.
Of that figure, £1.4bn came from its Ulster Bank division, pushing it into a loss of more than £1bn.
Anthony Reuben Business reporter, BBC News
The rise in the operating profit is certainly an encouraging sign for RBS, allowing Stephen Hester to talk about light at the end of the tunnel.
But the footnote in the results that lists the factors excluded by operating profits runs to seven lines, covering embarrassing things like compensation for mis-selling PPI and interest rate swaps, and fines for trying to fix Libor.
Mr Hester says he hopes to have the worst of the skeletons out of the closet by the end of the year, because it is this cleaning up process that will make the bank fit to sell.
It reported an operating profit of £3.5bn, which excludes all of the special charges and is a considerable improvement on the previous year's performance.
In a conference call for journalists, chief executive Stephen Hester warned of "another choppy year ahead of us", but added that "the light at the end of the tunnel is coming much closer".
The fine for attempting to fix the inter-bank lending rate, Libor, knocked £381m off the bank's profits, although it said it would be recovering £302m of that by reducing 2012 bonuses and clawing back previous ones.
It has taken a charge of £700m in the year for money it expects to have to pay out to cover mis-selling interest rate swaps.
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It also took a £450m charge in the last three months of the year to cover mis-selling of Payment Protection Insurance, taking its total provision to £2.2bn.
RBS set aside £215m to pay bonuses to its investment bankers, which Mr Hester stressed was considerably lower than other comparable banks.
Mr Hester said that the list of charges was "a powerful critique" of where the banking industry had gone wrong in the past, but added that he was confident that the "biggest and most wrenching cases can be recognised by the end of the year".
Continue reading the main storyHe also told the BBC that the bank would be in a "condition fit to sell" before the next election in 2015, but added: "There is no guarantee that the shares will be worth more than the government paid for them by that time."
Citizens saleRBS has announced that it is going to begin the process of selling some of its US business, Citizens, on the stock exchange in about two years.
The announcement was welcomed by Chancellor George Osborne as a sign of a greater focus on the UK.
"I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity, rather than to rival it," he said.
"I welcome RBS's announcement today to accelerate that strategy."
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Treasury Minister Sajid Javid: "It's a choppy period in the financial markets but RBS are making the right decisions"
However, Chris Leslie, Labour's shadow financial secretary to the Treasury, cautioned against selling off RBS too soon.
"The timing of the return of RBS to the private sector is a decision for ministers, but it must be based on the best long-term interests of the taxpayer, not driven by George Osborne's short-term political timetables," he said.
"As Ed Balls said in 2011, any profits from the sale of government shares in the banks should be used to repay the national debt. That is the fiscally responsible thing to do."
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