Why Hester has gone

There have been fears in the Treasury for some months that Stephen Hester would quit as chief executive of Royal Bank of Scotland.

In the event, he is leaving by what is described by a Treasury official as "mutual agreement" - because the chancellor and the chairman of RBS, Sir Philip Hampton, both felt this huge semi-nationalised bank is entering a new phase.

They believe the chief executive at this juncture needs to be someone who can stay in the job for a good five years. Mr Hester is apparently not prepared to commit to stay that long.

This new phase for RBS involves privatisation - which in itself is a process which is likely to take years, given the sheer size of the stake owned by taxpayers.

And, of course, RBS has to become a more normal bank, in the sense of providing the credit needed by the economy and earning big profits on its capital.

Mr Hester is seen as a chief executive who stopped RBS going bust. Now it needs a boss who will grow the bank again.

He will stay until a new boss arrives, and will leave with what most would see as a fairly substantial bag of money.

Mr Hester will receive £1.6m in cash, or a year's salary, and he will keep his long-term investment plan, currently worth £3m. The Treasury has capped his maximum entitlement from this plan at £4.2m.

Which may be seen by some as an example that bankers never lose - except that his leaving package is worth around a third of what he might have earned, had he stayed.

Update 1900:

I asked the Treasury if Stephen Hester had been sacked. An official said no.

That said, friends of Hester told me a few days ago he had decided in his own mind that he wanted to stay at the bank through privatisation - and it was therefore his bad luck that the board of RBS and the chancellor had other ideas.

To be clear, it is not that they don't rate him.

As the chairman Philip Hampton has said on numerous occasions, and again today, Hester has made RBS a much more solid bank, by shrinking it, getting rid of marginal and toxic assets, and increasing its capital resources to absorb potential future losses.

But Hester was not desperate to stay much longer than was necessary to get at least some of the 81% of the bank owned by taxpayers back on the stock market - whereas Hampton and Osborne want the boss to be there for the privatisation and some years beyond.

And there is a logic to their position.

It will be much easier to flog RBS to investors if the person at the helm (I almost said "man" at the helm - can't think why) is the person who not only sets RBS's future course but also steers it on that course.

Update 1945:

The Treasury won't be amused RBS's Sir Philip Hampton said in today's conference call that the chancellor is determined the bank is in a state to be privatised at the end of 2014.

Earlier today a Treasury official was urging me not to draw any conclusion on the privatisation timetable from Hester's departure.