RBS chief executive Stephen Hester quits with £1.6m-plus payoff

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Hester, parachuted into the bailed bank during the 2008 crisis, will stand down at end of year as RBS prepares for privatisation

Stephen Hester will leave RBS with £1.6m in pay and benefits and up to £4m in long-term incentive plan awards over the following three years. Photograph: Getty

The chief executive of Royal Bank of Scotland, Stephen Hester, was forced out of his job on Wednesday with a payoff at least £1.6m – and possibly up to £5.6m – as the bailed-out bank started preparations for privatisation next year.
Hester, parachuted in to take charge of the near-bankrupt RBS during the 2008 banking crisis, admitted it was the "board's decision" that he should go. Last month he said he was ready to see through his "mission" to return RBS to the private sector after its £45bn taxpayer bailout.
George Osborne, the chancellor, backed the RBS board's decision to introduce a new face at the helm of the 81% taxpayer-owned bank. But Treasury sources dampened expectations that the government would fire the starting gun on selling shares in the bank in the very near future.
The surprise announcement of Hester's departure came after the stock market had closed. It then emerged that Osborne met the bank's chairman, Sir Philip Hampton, last week to discuss the succession planning being undertaken by the bank, which is aiming for privatisation by the end of 2014. Osborne has never commented on the timetable for a share selloff.

 RBS issued a video statement from chief executive Stephen Hester
Describing the role he has held since October 2008 as "bruising and difficult" Hester said: "It is a sensible thing for the board to look forward to privatisation and I can completely understand that a fresh face with an ability to commit many years into the future may be a good thing for privatisation."
The 52 year-old, who has described running RBS as a "soap opera", was recruited during the depths of the 2008 banking crisis. He replaced Fred Goodwin as the bank attempted to shore up its finances after the disastrous takeover of ABN Amro left the bank on the brink of collapse. He has cut 39,000 RBS jobs – another 2,000 job losses are expected to be announced this morning – and reduced the size of the bank's balance sheet by £1tn, an amount equal to about two-thirds of the UK's annual GDP. The bank also reported a record-breaking annual loss of £24bn.
Hester will receive £1.6m in pay and benefits when he departs and up to £4m in awards of long-term incentive plans over the following three years. The package may provoke a furore, as payments to Hester have done in the past. He has been forced to waive his annual bonuses every year except 2010 since he has been running the bank.
Dominic Hook, national officer of Unite, said: "With over 30,000 job losses over the last five years and major stress for RBS staff there is likely to be a lot of anger over Stephen Hester's taxpayer-funded multimillion pound exit package."
The departing chief executive told Channel 4 News that the arguments over bankers' pay would go on for years. "Of course wrangles about bankers' pay are not going to stop with me … other people can carry on that baton," he said.
The bank said he was contractually entitled to the £1.6m, that he would not get a bonus for 2013 – the year RBS was fined £390m for rigging Libor – and still had 2m shares locked up in long-term incentive plans. The number of shares that can be released is capped at 65% – £4m at the current share price.
Hester and Hampton have been saying since February that the bank could be privatised next year, when a five-year restructuring programme will be complete.
"While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey. I will therefore step down at the end of this year to allow a new CEO to lead the group in this next stage," Hester said.
"I'm co-operating amicably. It is a board decision, not mine, but I am completely comfortable with the rationale behind it," he said, adding that he had "some human regrets" about not seeing through the privatisation.
"I have been pretty clear that I suppose I feel torn about this. I feel a sense of loyalty to the company and I want to do what is right for the company."
In 2012 he admitted he considered resigning in the row over his bonus payment. But in recent months he had been indicating that he wanted to see the bank through to privatisation and sources believed he would stay on for another two years to see through the process.Hampton said the board wanted Hester to make a commitment to stay for another four years. The chairman, who was part of the clean-up team put into RBS after the £45bn taxpayer bailout, said he thought the selloff of the taxpayer stake could be ready towards the end of 2014.
"If you work back from that date a new chief executive should in place for at least nine months, from early 2014," said Hampton. Hester's achievements had been "considerable", he said, and Osborne said Hester had made "an important contribution to Britain's recovery from the financial crisis".
Osborne is preparing to use his Mansion House speech next week to say more about reform of the banking system and respond to the report by the parliamentary commission on banking, which may not be published until next week.
Treasury sources were playing down expectations that the chancellor would spell out a timetable for the privatisation of RBS next week although a selloff of part of Lloyds Banking Group, in which the taxpayer owns a 39% stake, could come first.
Osborne said: "Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy, helping businesses and job creation here, and which can return to the private sector in a way that ensures value for the taxpayer."