Royal Bank of Scotland's boss has admitted the lender's £421 million bonus payments were "outrageous" after a seventh straight year of losses.

Ross McEwan said the bonus pool was down significantly on previous years but conceded that the public were right to be angry about the figure.

The bank racked up another £3.5 billion in annual losses today, taking the running total to nearly £50 billion since it was bailed out in 2008.

However, Mr McEwan said the company, which is still 80% owned by the taxpayer, had made significant progress in becoming "stronger and simpler".

He confirmed he will not take a £1 million "role-based" incentive, which is paid on top of salaries by some banks, and said the company's overall bonus pool had been cut by 21%.

However, he told BBC Radio 4's Today programme people were "quite right" to regard the sum of money the bank was handing out as "outrageous".

"Yes, and to be quite honest they are right," he said.

"It's not something I am going to change or can change today. What I can do is focus on this business and you are starting to see the progress we have made after one year.

"The underlying profits of this business are up. The capital is up, the costs are down. We are focusing on rebuilding the trust of customers."

He added: "Our bonus pool is significantly down over the last five years, it is down on last year. But what is really important is that these same people are the ones that you and I want to actually reform this bank and get it back to being a great bank that can get the money back for the UK."

Mr McEwan went on: "I understand the issue, but I need to be in a position to pay fair pay for people to do these jobs. There are some fairly technical jobs that we need to get right."

RBS also confirmed that Sir Howard Davies, the former head of the now defunct Financial Services Authority, will be its chairman from September. He replaces Sir Philip Hampton, who is set to join GlaxoSmithKline.

In a letter to Sir Howard, Chancellor George Osborne called on the new chairman to ensure the bank's business is "conducted to the very highest ethical standards".

He wrote: "Given the extraordinary support it has enjoyed in the past from taxpayers, I know you recognise that RBS must remain a backmarker on pay and continue to show responsibility and restraint."

Since its rescue from the brink of collapse in 2008, RBS has focused on offloading many of its foreign and investment banking assets to become a more UK-focused bank centred on retail and commercial banking.

RBS said the latest loss was attributable to a £4 billion write-down on the value of its US arm Citizens, having recently cut its stake in the business.

Operating profits were £3.5 billion - the highest since 2010 - as RBS said it had made significant progress towards building a bank that is "stronger, simpler and better for both customers and shareholders".

Other one-off items included £2.2 billion of conduct and litigation charges, including £320 million in the fourth quarter relating to the rigging of foreign exchange markets and a further £400 million to cover compensation for the mis-selling of payment protection insurance.

The chief executive said he could not give a guarantee that there would not be a repeat of scandals such as fixing of the Libor rate.

"Now look, I can't," he said. "What I can do is give you the guarantee we are building a really good customer bank and we are centring that bank on the areas that are strong in the UK and in western Europe so we can get it right."

Mr McEwan said it was "certainly not going to be months" before the bank was ready to return to the private sector, but it would be "much shorter" than 10 years.

RBS will continue to unwind the legacy of disgraced former boss Fred Goodwin by reducing the operations of its investment banking division to 13 countries from the 38 seen at the end of last year.

Risk-weighted assets in the corporate and institutional banking division will be reduced by 60% to less than £40 billion by 2019.

The move is expected to result in "substantial" redundancies but will help free up the group's capital position as it prepares for discussions with regulators next year about a resumption of dividend payments.

Sir Philip said that in 2009 the group assumed that a core capital ratio of more than 8% by 2013 would be sufficient to "constitute undoubted financial strength" in the minds of markets and regulators. Today, it has increased its capital target to 13%.

He added: "We must also acknowledge that we did not anticipate the more than £9 billion of regulatory fines and customer redress we have borne so far as we paid, and will continue to pay, the price for our past conduct failings.

"These conduct issues have delayed the re-build of our capital and directly reduced shareholder value. They have also caused continuing reputational damage. I hope as we move beyond these issues we can fully rebuild the trust of our customers, and by doing so win more of their business.

Shares were 5% lower today as the company's fourth quarter performance was below City expectations.

Independent City analyst Louise Cooper said: "Fred Goodwin's vision of RBS as a banking colossus has been firmly consigned to history.

"The investment bank is effectively being closed down and the bank's global ambitions cut back to operating mainly in the UK and Ireland. But the folly and grandiose ambition of the previous chief executive has and continues to cost current shareholders and taxpayers tens of billions of pounds."

Commenting on Mr McEwan's decision not to take the £1 million incentive, shadow chancellor Ed Balls said: "I think he has made the right call on his own bonus or allowance.

"We are going to need to look carefully at what is happening with allowances at RBS because we know given this European rule change there is the possibility of people shifting from bonuses to allowances."

He added: "There are still some big challenges left for RBS to sort out, and I think the new chief executive is trying to take the bank down the right track, but there is a lot more work to be done."

Meanwhile, Unite has said it will be seeking an urgent meeting with RBS about "substantial restructuring" in the investment banking division.

Rob MacGregor, Unite national officer for RBS, said: "Unite is deeply concerned that the announcement today by RBS of further restructuring will unfairly impact low paid and administration staff within the investment banking division.
 
"Today's announcement won't leave the wealthy traders devastated and worried about how they pay their mortgages. It will be the worker in the back office earning £20,000 per year who now faces uncertainty about what the future holds.
 
"Already over 30,000 jobs have been cut from across RBS since the bailout in 2008. We now want a proper consultation period with Unite involving serious negotiations about how the business will be restructured."