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RBS's loss more than doubles, dividend prospects darken

* Q1 loss 968 mln stg (2015: 459 mln loss)

* CFO cautions on timing of return to dividend (Adds investigation into former Swiss unit)

By Andrew MacAskill and Lawrence White

LONDON, April 29 (Reuters) - Royal Bank of Scotland reported a sharp rise in losses in the first quarter on Friday and cautioned on the timing of a return to dividend payouts as lower income, restructuring costs and sluggish asset sales underscored the challenges still facing the lender.

The Edinburgh-based bank, which was rescued with a 46 billion-pound ($67 billion) state bailout during the 2007-09 financial crisis, has still not made an annual profit since 2007.

In the latest quarter the bank reported a net loss of 968 million pounds($1.42 billion), up from 459 million pounds in the same period last year and slightly higher than the 957 million pounds forecast on average by analysts, according to the bank.

Income dropped 13 percent to 3.06 billion pounds.

The shares were down 2.9 percent at 237 pence by 0837 GMT.

Results were also hit by a 1.2 billion-pound payment to end the British government's prior claim on any dividends, a 238 million-pound restructuring bill and a 226 million-pound impairment charge in its shipping loan portfolio.

That bill includes the mounting costs of separating its Williams & Glyn business, which the bank said it could fail to sell off before the end-2017 deadline imposed by EU regulators as a condition for approving the bank's receipt of state aid in 2008.

"This is the most complex project I have seen in banking anywhere in the world," Chief Executive Ross McEwan told reporters on a call after the results release.

Analysts are sceptical of the bank's ability to deliver on its promise to divest the business by the 2017 deadline.

"With the excess capital now being tied to ... the W&G surgery where we have no option but to trust management's view on complications, we have decided to get out," analysts at Bernstein said in a note to clients.

RBS did not record any major provisions for repaying customers mis-sold payment protection insurance (PPI) but it warned that it expected to shell out more than 1 billion pounds in restructuring charges this year.

This would come on top of hefty penalties from the U.S. authorities for mis-selling mortgage securities.

RBS also disclosed that the Swiss government had opened an investigation into transactions at its former international private bank, which earlier this month was accused by a Malaysian parliamentary investigation of handling $700 million in a multi-billion dollar graft scandal that has embroiled the country's prime minister.

INCOME

Total income at RBS's UK retail bank fell 3 percent in the first three months of the year to 1.28 billion pounds, reflecting the continued pressure on margins and lower fees, while its corporate and investment bank unit saw income plunge by 36 percent, due in part to volatility in global markets.

The bank's common equity Tier 1 capital solvency ratio, a measure of its resilience against financial market shocks, fell to 14.6 percent of risk-adjusted assets from 15.5 percent at end-2015, after buying out the government's right to an enhanced dividend.

RBS is still 73 percent owned by the British government. The latest quarter's results bring the total sum lost by the bank since the bailout to around 52 billion pounds. ($1 = 0.6846 pounds) (Editing by Sinead Cruise, Greg Mahlich)