RBS CEO Stephen Hester to Step Down After Almost Five Years

Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, unexpectedly said Chief Executive Officer Stephen Hester will step down at the end of 2013 as the U.K. prepares for a possible share sale.

“We are now in a position where the government can begin to prepare for privatizing RBS,” Hester, 52, said in a statement today. “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.”

Hester joined Edinburgh-based RBS in 2008 after former CEO Fred Goodwin left the bank following a 45.5 billion-pound ($71.4 billion) taxpayer bailout, the biggest in the banking industry. His departure comes as the government prepares to start selling its 81 percent stake in RBS and 39 percent holding in Lloyds Banking Group Plc before the next general election scheduled for 2015.

“It’s very disappointing news,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool, England with a hold rating on the stock. “Hester was liked by the markets for having done a good job in turning the bank around so far.”

Since Hester took over as CEO he has shrunk the balance sheet to about 1.3 trillion pounds at the end of the first quarter from 2.2 trillion pounds, selling businesses and eliminating more than 36,000 jobs. The bank in May posted its first quarterly profit since 2011 as impairments on souring loans dwindled and Hester predicted the restructuring would be “substantially complete” this year.

‘Turnaround Possible’

“I want to commend Stephen Hester for everything he has done to make this turnaround possible,” Chancellor of the Exchequer George Osborne said in a statement today. “Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a U.K. bank that provides greater support to the British economy.”

RBS Chairman Philip Hampton, 59, will start a search for a CEO successor and will consider both internal and external candidates, the bank said.

“The acceleration of considering succession for the CEO role arises from the Treasury’s determination to see the bank is in a state that it can be returned to the private sector by the end of 2014.” Hampton told reporters on a conference call today. “We do need a chief executive with a period in front of them rather than a very big period behind them.”

Average Price

Hester said last month that he saw a “cogent” case for the government to start selling its RBS stake, even at an initial loss. The average price the taxpayer would achieve for the entire holding in RBS would be higher than the government’s rescue price, he said.

“It is the board’s decision and my position throughout is I want to do what’s right for RBS,” Hester told reporters on a conference call today. “I was prepared to carry on through privatization, but I think that it is very fair to say for me that would have been an end. Am I completely comfortable with the rationale? Yes I am.”

The shares fell 0.6 percent to 325.6 pence in London trading, below the 407 pence a share the government sees as break even on its investment. The announcement came after the close of trading. The stock has gained 47 percent in the past 12 months.

Hester will be paid 1.6 million pounds, representing 12 months of pay and benefits and won’t get a bonus for 2013. He may also receive as much as 4 million pounds of shares as part of a long-term incentive plan, the bank said.

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