By Matt Scuffham
LONDON (Reuters) - Royal Bank of Scotland
Hester said on Wednesday he would have liked to carry on at the helm for the start of sale of the government's 81-percent stake, which could take place before the next election in 2015.
However, the bank said the 52 year old had been unable to make an open-ended commitment to remain as chief executive, having held the role for five years, and that the board believed a change at the top now would give the new CEO time to prepare for the government sale and lead it in the years following.
Britain pumped 45.8 billion pounds ($71.8 billion) into Royal Bank of Scotland (RBS) to keep it afloat during the 2008 financial crisis.
Finance Minister George Osborne is expected to say next week that the time is right for the government to start offloading its stakes in the country's state-backed banks, with shares in rival Lloyds
Hester has been praised by the government and investors for restructuring RBS by slashing risky assets and costs, in a drive which he dubbed the "biggest turnaround in corporate history".
RBS's underlying profit nearly doubled to 3.5 billion pounds last year, the highest since its bailout, although a 4.6 billion pound change for losses on the value of its own debt drove it to a pretax loss of 5.2 billion pounds
One of RBS's biggest 20 shareholders said Hester would be missed but his departure now was better than coming halfway through the sale of the government's stake.
"If you're going to go, you either wait until afterwards or you do it now. He's a well respected manager of RBS and he's stood up well for shareholder interests, so he'll be missed," the investor told Reuters.
The list of potential successors is likely to be short given the task of dealing with regulators and politicians. Richard Meddings, finance director at Standard Chartered
"The job is not complete - I certainly have some human regrets about not completing it," Hester said in a video posted by the bank. "But it has been a very bruising and difficult job so I certainly don't have to be prised away reluctantly."
"Ideally the phase of privatization and beyond should be a beginning for someone, and for me it would have been an end," he added.
RBS said the search for a successor would be led by Chairman Philip Hampton and consider internal and external candidates.
Hester will continue to lead the business until December, unless a successor is in post before then. He has been CEO since November 2008 and there has been frequent speculation this year he could leave at the end of his five year plan.
Hester will receive 1.6 million pounds when he leaves, representing 12 months pay and benefits in line with his contract. He will not receive a bonus for 2013.
Osborne said RBS was "a bust bank with a broken culture" when Hester took over and he had made it safer and stronger.
"Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy, helping businesses and job creation here, and which can return to the private sector in a way that ensures value for the taxpayer."
Hampton said the bank had been thinking about succession planning "for a while", which had been given more urgency by the government's plan to start selling its stake.
The board finalized the decision at a board meeting on Wednesday.
($1 = 0.6375 British pounds)
(Additional reporting by Steve Slater and Chris Vellacott; Editing by Mark Potter)