Very shabby: Verdict on Stephen Hester's treatment by RBS

Exit of banker who nursed RBS back to health shocks and perplexes investors

The City was last night reeling at Stephen Hester's departure from Royal Bank of Scotland amid widespread praise for his work there.

Many seemed perplexed that Mr Hester should be disposed of when he was in an ideal position to launch the float. Several described his treatment as "shabby".

One senior banker from a rival UK lender pointed out that Mr Hester had the best contacts with international investors to lead the company back on to the stock market: "It does appear odd that Hester has been pushed over the side at this stage. His whole background is in investment banking, so who better to have started the privatisation? Also he has been involved in roadshows to the Middle and Far East. How are those sovereign wealth funds going to read this?"

Others queued up to defend Mr Hester's achievements in cleaning up RBS's disastrous balance sheet. He has managed to dispose of vast swaths of the toxic debt he inherited in the investment banking side of the business while also keeping the retail arm healthy, they said.

Robert Talbut, chief investment officer at Royal London Asset Management and head of the Association of British Insurers' influential investment committee, said: "I think history will be a lot kinder to Stephen Hester than perhaps some current commentators think. He took over RBS in a distressed situation and has nursed it back to reasonable financial health."

A senior executive at a rival bank to RBS said: "He has done a terrific job for RBS and the taxpayer. Who could believe at the height of the financial crisis that we would be talking about floating the bank this year? People forget, he was not part of the crisis in banking, he was brought in clear it up."

He added that Mr Hester would now be able to earn more elsewhere as an expert in turning businesses around, given his achievements both at RBS and Abbey National.

Some bankers reported that there had been rumours that Mr Hester might not have been prepared to make a long enough commitment to stay with the business post-float.

"There has been speculation that he wants to make some 'serious money' before reaching retirement age," said one.

The manner of his departure also led to questions, with one senior banker saying: "The City will want to know more. Did he fall out with the Chancellor? In particular, does his pay-off include a gagging clause?"

David Buik, the City commentator, declared: "Whether he was shoved or resigned, I think he was scurrilously treated. Hester's job was work in progress. The balance sheet has been reduced from £2.2 trillion to £1.4 trillion, assets have been disposed of and there is a healthier outlook. There is no case for RBS to be privatised or split. It is far too early in the recovery process.

"Whoever takes over will need to be a man of steel and not one who panders to politicians."