British news sources report Hester was forced out by Chancellor of the Exchequer George Osborne. RBS, which is 81% owned by the government, is in preparations for privatization.
The government acknowledged it approved the move but insisted that Hester's removal was a Royal Bank of Scotland board decision and not a government intervention, according to media reports.
Hester himself commented that he would have liked to have completed the privatization of the RBS before stepping down, media reports said. A successor has not yet been identified.Hester is also reported to have been promised a severance package worth over 5 million pounds. Investors were rattled by the suggested government involvement in the decision. The Daily Mail cites "speculation last night that Mr Hester may have been removed because he opposed the Government's timetable for privatisation." On FTSE, RBS shares dropped as much as 6.1% and were recently down 4.8%. The news appears to have had little impact yet on this side of the Atlantic, with RBS shares flat in premarket trading. Hester has been CEO of RBS for five years, accepting the post in the wake of the credit crisis that forced a 45 billion pound ($71 billion) public bailout of the bank.