Stephen Hester to step down as RBS chief executive A branch of The Royal Bank of Scotland on April 3, 2013 in London, England. Stephen Hester is to step down as Royal Bank of Scotland CEO at the end of the year Comes as the UK government pushes for another overhaul of the part-nationalized group UK is preparing the ground to start selling its 82% stake in the lender (Financial Times) -- Stephen Hester is to step down as chief executive of Royal Bank of Scotland at the end of the year as the UK government pushes for another overhaul of the part-nationalised group and prepares the ground to start selling its 82 per cent stake in the lender. Aides to George Osborne, the chancellor, said he and the bank's board had been keen to appoint a new CEO who could lead a five-year transition that would see RBS reprivatised and re-established as a British commerical bank. "Having brought RBS back from the brink, now is the time to move on from the rescue phase," Mr Osborne said. The board said on Wednesday that it would launch an immediate search for a successor to Mr Hester, looking both internally and externally. Mr Hester was parachuted into RBS in late 2008 to replace the disgraced Fred Goodwin. The bank had to be bailed out with £45bn of government money following Mr Goodwin's disastrous takeover of Dutch bank ABN Amro, just as the global financial crisis was taking hold. He has overseen a dramatic shrinkage and clean-up of RBS, but had resisted pressure to pull back from interntional and investment banking as dramatically as the government would have liked. RBS is set to announce further cut-backs in its investment bank on Thursday, with up to 2,000 of its 11,300 investment bankers set to go as the group implements an earlier plan to shrink the unit's balance sheet by a further 20 per cent. There may also be an attempt to further cleanse RBS of more of its non-performing businesses, with a particular focus on Irish subsidiary Ulster Bank, according to people close to the situation. Mr Osborne has previously outlined many practical reasons for not removing more of RBS's toxic assets from the bank, but the chancellor is now considering the option and may give details in his Mansion House speech next week. He said he was awaiting a report by Andrew Tyrie's parliamentary banking standards committee, which will identify a "good bank/bad bank" split as a possible option for swiftly restoring RBS to health. All of that could hold up the swift reprivatisation that RBS has been hoping for. In a change of tone from the Treasury, Mr Osborne's aides now say the chancellor is "not desperately trying to sell shares before the election." The chancellor recognises that any RBS sale far below the 503p paid by the Labour government in 2008-9 would be politically unpalatable, in spite of David Cameron's wish to return to the bank to the private sector "as fast as possible." The market response to Mr Hester's removal was mixed. "His departure will be a loss," analysts at Citigroup wrote in a note to clients. However, one top 20 investor in RBS said: "We have a lot of regard for Hester. But maybe now is the time to appoint a new person ... to be there at the beginning of the privatisation. The choice of successor will be crucial for investors. Two people familiar with the situation said Sir Philip Hampton, RBS chairman, had taken informal soundings both within the bank and externally in the past few weeks. Richard Meddings, currently finance director of emerging markets-focused bank Standard Chartered, is among those to have been indirectly approached, the people said. RBS's most likely internal candidates for the role would be risk chief Nathan Bostock, who is poised to become finance director, Rory Cullinan, who has headed the process of winding down the bank's non-core portfolio, or retail boss Ross McEwan. Mr Hester will receive a severance payment in December of £1.6m, equivalent to 12 months' pay and benefits, but no annual bonus. He will remain entitled to ongoing long-term incentive awards, equivalent to about 2m shares. However, these will be subject to performance conditions, which will cut the realisable maximum to between 45 per cent and 65 per cent of the total -- equivalent to £3m-£4m at today's share prices. Mr Osborne praised Mr Hester's "important contribution" and Sir Philip acknowledged his "absolutely immense achievements." But it is clear they eased the chief executive from his job. Mr Hester himself had been keen to stay on for at least another two years to see RBS return to sustainable profitability and to shepherd through the start of the bank's reprivatisation. He recently told the Financial Times: "I hate not winning, I hate it." Mr Hester said in a video interview on the RBS website: "I can completely understand that a fresh face with the ability to commit many years into the future may be a good thing for privatisation. Of course I'd like to have stayed because I feel that I've been in the trenches with all my people helping RBS to recover. Privatisation would have been fitting end to those endeavours. But he added: "Its been a very bruising and difficult job, so I certainly don't have to be prised away reluctantly." Mr Osborne said in a statement: "When Stephen Hester took on the job at RBS in 2008 it was a bust bank with a broken culture and posed a huge risk to financial stability. RBS today is safer, stronger and better able to support its customers. I want to commend Stephen Hester for everything he has done to make this turnaround possible. The size and complexity of the bank has been significantly reduced, with a far greater focus on serving its UK customers. Some bankers have long believed the end of 2013 would be a natural time for Mr Hester to step down, with RBS's turnround programme -- including the wind-down of a £250bn portfolio of "non-core," largely non-performing, loans -- set to be all but complete by December. The government had been keen to initiate the process of selling its 82 per cent shareholding in RBS, and its 39 per cent stake in Lloyds Banking Group, before the 2015 general election. Bank insiders say Mr Hester has had a difficult relationship with the government and, in recent months particularly, with Sir Philip. Sir Philip said in a video interview released by RBS: "This has been one of the most demanding business jobs in the world." The public environment for banks and bankers has been very difficult. For Stephen, its been even more challenging. There have been annual rows over bonuses, both for himself and for RBS's well-paid investment bankers. Mr Hester, a former Credit Suisse executive, has fought hard to keep intact RBS's investment banking operation and its US retail banking presence. But late last year -- after a direct intervention by Mr Osborne, and under pressure from regulators over capital -- Mr Hester relented on both issues. The investment bank is now being shrunk by a third and Citizens, its US consumer arm, is preparing for flotation. Replacing Mr Hester will be a challenge. Mr Meddings is among the few British executives generally considered a feasible candidate, although bankers point out that even his nomination could be politically problematic due to his involvement in a row between StanChart and US regulators last year over sanctions breaches -- an affair that ended up costing the group hundreds of millions of dollars in fines. Brooks Newmark, a MP on the Treasury select committee and former senior partner of private equity outfit Apollo Management, said that the bank and the government were right to ask Mr Hester to leave if he could not commit to another lengthy term at the helm of the bank. "If you are planning to do a share offering, any uncertainty with key management would give hindrance to potential shareholders," he said. He [Mr Hester] has completed a complicated restructuring and effectively created a new RBS going forward and it probably makes sense now to have a new chief executive in. If they do the transition now, Osborne has some time for a capital raising or tax payer pay out before the 2015 election. Additional reporting by Jennifer Thompson, Elizabeth Rigby and David Oakley