The report, published on Thursday, blamed the loss on the £3.2bn it had to set aside in compensation for customers mis-sold payment protection insurance.
Excluding the amount for PPI, profits before tax were £1.1bn, down from £1.6bn a year ago.
As a result, the company, which is 41 per cent owned by the Government after a bailout, could be forced to sell off yet more branches. It has already put 632 branches up for sale following its Government bailout and takeover of Halifax Bank of Scotland.
Plans for the future include focusing on its UK customers and halving its international presence by 2014.
In June the firm announced that 15,000 jobs would be lost in a cost-cutting programme to save £1.5bn by 2014.
Group chief executive Antonio Horta-Osorio said: “We delivered a resilient first half performance, despite the ongoing challenges of economic and regulatory uncertainty, and have made substantial progress in restructuring and de-risking the Group.
“I expect the actions we are taking to enable us to create a high performance organisation over time and deliver the best from our franchise for both our customers and our shareholders.”