Multimillion severance payment for RBS chief Stephen Hester

The chief executive of Royal Bank of Scotland is to step down at the end of the year as the British government prepares the ground to start selling its 82 per cent holding in the bank.

The board said yesterday it would launch an immediate search for a successor to Stephen Hester, who has admitted that the decision to leave was not his. Mr Hester said: "This is a board decision – it's not mine. But I understand the rationale."

Two people familiar with the situation said Sir Philip Hampton, RBS chairman, had taken informal soundings within the bank and externally in the past few weeks.

Richard Meddings, finance director of emerging markets-focused bank Standard Chartered, is among those to have been indirectly approached, the sources said.

Mr Hester will receive a severance payment in December of £1.6 million (€1.8 million), equivalent to 12 months of pay and benefits, but no annual bonus. He will remain entitled to ongoing long-term incentive awards, equivalent to about two million 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 £3 million–£4 million at today’s share prices.

The move comes after a month or two during which Mr Hester announced his determination to “finish the job”, as he put it.

He was parachuted into RBS in late 2008 to replace the disgraced Fred Goodwin. The bank had to be bailed out with £45 billion of government money following Mr Goodwin's takeover of Dutch bank ABN Amro. – Copyright The Financial Times Limited 2013