Britain's Royal Bank of Scotland revealed today that it will write off £1.25 billion sterling from its exposure to the US sub-prime home loan crisis and the subsequent  worldwide credit squeeze. RBS owns Ulster Bank here.

The bank said in a trading update that it would take a major hit, equivalent to about €1.74 billion,  owing to credit market deterioration in the second half of 2007.

The total includes an expected sub-prime related loss of £300m from the purchase of Dutch group ABN Amro earlier this year.

RBS shares jumped 5.5% in London this morning as investors were reassured that the writedowns were not  as bad as expected.

RBS follows in the footsteps of rival group Barclays which announced in November that its investment arm, Barclays Capital,  would take a £1.3 billion hit.

Despite the huge losses, RBS chief executive Fred Goodwin remained upbeat on the group's outlook.

'Although some of our businesses have been affected by the challenging market conditions, the group's underlying earnings trajectory has remained comparatively unaffected,' Goodwin said in the statement.

Barclays and RBS are among a number of major global banks to  uffer losses on securities backed by loans to American homebuyers with patchy credit histories. The US sub-prime crisis has also led to a credit squeeze as commercial banks have turned cautious about lending money to one another and tightened their lending criteria.

Earlier this year, RBS bought ABN Amro for about $100 billion in a successful consortium bid that also included  Dutch-Belgian group Fortis and Banco Santander of Spain.