Anatomy of a state-owned bank

Mr Hester succeeded Sir Fred Goodwin (known as Fred the Shred because of his cost-cutting reputation) in November 2008.

At the time, RBS was in turmoil, having to be bailed out by the taxpayer to the tune of £45bn. For a short time, the bank had even been the biggest bank in the world. This £45bn “investment” is worth just £25bn today and the bank’s share price has tumbled from 180p, before Mr Hester was appointed, to 27p today.

This is not good news for shareholders, especially the taxpayer, who owns 82 per cent of the company.

In the dark days of 2008, RBS made a staggering £24bn loss, the biggest in British corporate history. Since then, losses have been stemmed (to £1.1bn in 2010 and £3.6bn in 2009) and in the first nine months of 2011, the bank made a modest £1.2bn profit.

Mr Hester’s priority has been to shrink RBS, which had become so swollen before the bailout that it was deemed “too big to fail”. He has succeeded in doing this, reducing the firm’s balance sheet (made up of assets and liabilities) from £2.2tr to £1.6tr, a reduction of £600bn.

But RBS is still a huge business – bigger than the £1.4tr size of the British economy. This is despite the loss of 33,000 staff, who have been axed since he took over.

Mr Hester is paid £1.2m a year, and was entitled to a short-term bonus of £963,000. At RBS, there is a cap on short-term bonuses of 200 per cent of salary – £2.4m in Mr Hester’s case. He is also in line for long-term bonuses of as much as £8m.

RBS argues that he is worth it because he has made the company safer and turned it into a profit-making business.

Bonus busted: RBS chief Stephen Hester waives bonus