By Ray Fleming

THE unexpected and in some ways puzzling resignation of Stephen Hester as chief executive of Royal Bank of Scotland caused confusion and uncertainty in the City of London yesterday. In 2008 Hester was chosen by Gordon Brown and Alistair Darling to take over a bank that was in total disrepair and in which the British government had made an 81 percent investment. This week Chancellor of the Exchequer George Osborne said: “I want to commend Stephen Hester for everything he has done to make this turnround possible.” So why has the government not wanted Hester to stay to handle the huge task of privatisation? Hester has said he is willing to take this on but has not been ready to commit himself for an indefinite time beyond privatisation.

For some time there have been reports of disagreement between Hester and both the Chancellor and the business minister Vince Cable about the way in which the privatisation should be conducted. Although theoretically the Board of RBS is responsible for such senior appointments and major policy decisions the reality is that with an 81 percent stake the government has a controlling interest. The general opinion in the City yesterday seems to have been that Hester's treatment had been “shabby” and that the government and bank will have difficulty in finding a replacement of similar calibre for what Hester has called a “bruising job”.