Part-nationalised RBS closed 8% lower, down 27.6p to 340p, as the bank returned to losses in the third quarter and warned that higher bad debt writedowns of up to £4.5 billion in the final three months of the year will lead to a significant full-year loss.
The FTSE-100 Index held firm - up 3.3 points to 6734.7 - thanks to big share gains from mobile phone giant Vodafone due to reported bid interest from AT&T.
Bloomberg reported that AT&T was laying the groundwork for a potential deal for Vodafone, which is in the process of selling its stake in US venture Verizon Wireless for £84bn.
Vodafone shares jumped 8p to 232.5p, a rise of 4%.
Robust manufacturing figures failed to boost the pound, which slipped to 1.59 US dollars and held firm at 1.18 euros.
The latest UK purchasing managers' index survey recorded a level of 56 in October, well above the 50 mark which separates growth from contraction.
Among stocks, RBS fell after a disappointing update, with one City analyst calling the latest numbers a "grim wake-up call".
The lender avoided a threatened carve-up and nationalisation of its problem loans in the review, instead outlining Treasury-backed plans for an internal 'bad bank' with £38bn of toxic loans that will see it run down the assets at a faster rate.
Results for the third quarter also revealed a plunge back into the red, with an operating loss of £634 million reflecting one-off factors such as an additional £250m to cover PPI mis-selling.
Other banks were also on the back foot, with Barclays off 7.3p at 256.3p as reports suggested six of its traders had been suspended in connection with the global probe into alleged foreign exchange fixing, with two RBS traders also believed to be on paid leave of absence as part of the investigations.
Some comfort for RBS came from the performance of insurer Direct Line Insurance, in which the group has a 28.5% stake.
The business reported a 6% increase in operating profits for the third quarter and said claims from this week's storm should not exceed current expectations for £25m of costs for the whole of the fourth quarter. Shares were 3.5p higher at 228.5p.
Back in the top flight, engineer Meggitt was the biggest faller after it said trading in the four months to October 31 was slightly below expectations. Shares dropped 11%, or 63.5p to 509p.
The biggest FTSE-100 risers were Vodafone up 8p at 232.5p, International Airlines Group 6p higher at 353.9p, Schroders 38p ahead at 2617p and Royal Dutch Shell up 30p at 2189.5p.
The biggest FTSE-100 fallers were Meggitt down 63.5p to 509p, Royal Bank of Scotland off 27.6p to 340p, Randgold Resources 133p lower at 4507p and Barclays down 7.3p to 256.3p.