Gordon Brown created two new kings of British banking yesterday. The man brought in to clean up the Royal Bank of Scotland (RBS) is Stephen Hester, 48, the British Land chief executive, while Eric Daniels, of Lloyds TSB, will become the longest-serving chief executive of a British bank when Sir Fred Goodwin leaves RBS.

Mr Hester is a former investment banker with an excellent track record. He turned round Abbey National five years ago and has steered British Land, his present employer, through a collapse in property prices.

Salvaging this once-proud Scottish institution, which has fallen on such hard times, is the biggest challenge in British banking, however.

Mr Hester, a lifelong Conservative and former chairman of the Oxford University Tory Reform Group, is deemed by the City to be relatively young for the job. Outside the City he is a keen gardener with an historic house standing in 350 acres in Oxfordshire. He is a trustee of Kew Gardens.

Mr Hester was brought in as a nonexecutive director at RBS several months ago in what was widely presumed to be a precursor to his appointment as chief executive. Nevertheless, sources say that the top job offer came only last Friday in a telephone call from Sir Tom McKillop, the RBS chairman, who is also leaving the bank.

The sources say that Mr Hester had planned to stay at British Land for ten years and had completed only four when he got the RBS job offer – but the banking sector was already calling. He took on the role of nonexecutive vice-chairman at Northern Rock in February, but stepped down to take the RBS job.

The return to banking has brought Mr Hester’s career full circle. He started out at Credit Suisse First Boston, where he spent 19 years before joining Abbey as chief financial officer. He is one of a growing number of bank bosses paid from the public purse.

Ron Sandler, whom the Government parachuted into Northern Rock in February, caused a stir when it emerged that he was paid £90,000 a month. Eyebrows were raised when it emerged he is a “nondom” for UK tax purposes because of his German passport. But his credentials in turning around failing British businesses are impeccable. Mr Sandler was brought in as chief executive of Lloyd’s of London, the insurance market, in 1994 when the business was near collapse.

Mr Daniels, dubbed “The Quiet American”, is the son of a German university professor and a Chinese mother. He is also an ex-investment banker, having joined Lloyds from Citigroup in 2003. Like the rest of the Lloyds board, he will not be entitled to cash bonuses while his bank remains partly in government hands.

Bonus crackdown

The Financial Services Authority (FSA) is to crack down on banking pay and bonuses. It has written to the chief executives of 30 of the biggest banks and building societies to ensure that their remuneration policies are aligned with sound risk management systems and controls.

The FSA can fine over poor practice: basing bonuses on revenue, not profits, and rewards for less than several years’ performance.

It has been critical of pay given wholly in cash and also if it has little or no fixed component. It added that it was poor practice to have no transparent means for managing conflicts of interest.

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