UPDATE 3-RBS CEO Hester nudged out as bank seeks leader to guide sale
* Hester says would have liked to stay for privatization
* RBS says Hester could not make "open-ended" commitment
* Hester says his exit was a "board decision"
* Hester to stay on until successor is in place
* Hampton met with Finance Minister Osborne last week
By Matt Scuffham and Steve Slater
LONDON, June 12 (Reuters) - Royal Bank of Scotland Group Plc boss Stephen Hester will step down later this year, after the bank's board decided it wanted new leadership to oversee the sale of Britain's majority stake in the bank, which could take years.
Hester said on Wednesday he would have liked to carry on at the helm for the start of the sale of the government's 81 percent stake, which could happen 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.
Political and industry sources told Reuters that RBS's chairman, Philip Hampton, initiated talks with Britain's finance minister, George Osborne, last week to discuss possible leadership changes at the bank.
Hester admitted that the decision to leave had not been his and said he had been willing to stay on to oversee the start of the bank's return to private ownership.
"It is a board decision, not mine, but I am comfortable with the rationale. I was prepared to carry on through privatisation," he told reporters on a conference call.
Britain pumped 45.8 billion pounds ($71.8 billion) into Royal Bank of Scotland to keep it afloat during the 2008 financial crisis.
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 expected to be sold off first. Hampton said the bank would be ready to start the return to private ownership at the end of 2014.
Hester has been praised by the government and investors for restructuring RBS by slashing risky assets and costs, in a drive he dubbed the "biggest turnaround in corporate history". The bank has shrunk its investment bank and will cut a further 2,000 jobs on Thursday, sources familiar with the matter said.
RBS's underlying profit nearly doubled to 3.5 billion pounds last year, the highest since its bailout, although a 4.6 billion-pound charge for losses on the value of its own debt drove it to a pretax loss of 5.2 billion pounds.
One of RBS's 20 biggest 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 Plc, has been tipped as a potential successor, along with the ex-co-head of JP Morgan's investment bank, Bill Winters, and former Barclays Plc finance director Naguib Kheraj.
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 that he could leave at the end of his five-year plan.
"Of course I'd like to have stayed as I feel I've been in the trenches with all of my people helping RBS to recover and privatisation would have been a fitting end to those endeavours," 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 privatisation and beyond should be a beginning for someone, and for me it would have been an end."
The soft-spoken Hester arrived at RBS after a long career as an investment banker, including 19 years at Credit Suisse Group AG. He was finance director at Abbey in 2002, purging it of its complex assets, and then became CEO of property firm British Land.
The government parachuted him in and told him to sort out the mess left by former RBS CEO Fred Goodwin, who over-reached with a string of acquisitions and ran capital too low.
RBS said the search for a successor would be led by Hampton and consider internal and external candidates.
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.
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 finalised the decision at a meeting on Wednesday.