Fred Goodwin: The 'boy from Paisley' who found himself at centre of a global storm

After all, during his seven-year tenure as RBS boss, he earned both respect and fear in the City as a leading figure in the financial world. And under his guidance, RBS swelled in size, taking over NatWest.

But yesterday, as his departure was announced, he was on the receiving end of paparazzi flashbulbs and shouted questions about a waste of taxpayers' money after the bank was forced to rely on 20 billion of government funding

His demise came less than six months after he was forced to ask shareholders for 12 billion of extra funds to bolster the balance sheet.

Sir Fred even had the embarrassment of having to share a telephone conference podium with his successor, Stephen Hester.

They were perfectly polite to each other but it cannot have been easy for Goodwin to hear Hester effectively say his aim was to review strategy "from first principles" and that there would be "no sacred cows".

His departure today makes him the highest-profile UK banking casualty of the credit crunch so far – and also one of the best paid.

Yesterday's events are a stunning setback for Sir Fred, 49, in a career that has had three distinct phases: stellar rise; City suspicions creeping in; and ignominious downfall.

After studying law at Glasgow University, he joined accountants Touche Ross, and became chief operating officer of the worldwide liquidation of Bank of Credit and Commerce International in 1990.

At just 32, Goodwin was running a staff of 1,000 with teams from London to Abu Dhabi in one of the most complex, high-profile financial frauds the City had ever seen.

He was seen as having done a very good job and it got him noticed in both political and business circles.

Goodwin was then headhunted for the job of deputy chief executive of Clydesdale Bank in 1995, and appointed to the top job a year later at 38.

It was from his unsentimental axe-wielding of jobs at Clydesdale, owned by National Australia Bank, that he first earned the nickname "Fred the Shred".

He was poached by Royal Bank of Scotland in 1999 as deputy chief executive to Sir George Mathewson, succeeding Mathewson in early 2001 after the successful acquisition of NatWest the previous year.

Some say it was Goodwin's high point. His cost-cutting at NatWest – Fred the Shred II – was seen as responsible for driving up RBS earnings.

However, as he later went on a flamboyant acquisition flurry some City doubters wondered whether the wunderkind was going too far, too fast.

Between 2001 and 2004, he bought Mellon Financial Corp's retail banking arm in the US for 1.33 billion, the "nodding dog" insurer Churchill for 1 billion and Charter One Financial, again in the US, for 5.8 billion. The pace of activity was dizzying.

Terms like "serial acquirer", even "megalomaniac", began to be aired in the City. Goodwin's halo was tarnishing.

However, things became much worse for him over the past 18 months or so. In March 2007, he publicly ruled out any further big deals. There were none that were "desirable, do-able or affordable," he said.

Just a month later, RBS formed a consortium with Santander of Spain and Fortis to bid for Dutch bank ABN Amro.

This cost RBS 10 billion for a share of ABN, with Goodwin still prepared to pay top dollar for the assets despite the onset of the credit crunch.

The rest is history. This year has been an unmitigated disaster for the RBS boss.

After saying RBS did not need to raise new capital, the bank launched a 12 billion rights issue earlier this summer, angering many City critics.

When 5.9 billion of credit-related writedowns tumbled RBS to a 692 million interim trading loss in August, his name was mud in some quarters.

The implosion over the wider banking sector did the rest and led to yesterday's further fall from grace.

Obviously tired from a gruelling set of talks with the government, Goodwin was asked yesterday what he would do now. "A good long rest is the first order of priority," he said. He added that he was looking forward to "a period of rest and reflection before getting round to what to do next".

He will have more time for his main hobbies, including golf and restoring classic motor cars. Perhaps less likely given the manner of his departure is further worthy work for the government.

Will he be missed at RBS? Probably yes, and no. His occasional micro-management is known to have upset some within the bank.

However, another senior insider once told me: "Fred's driven, but it's leavened with a mischievous sense of humour. You can take the boy out of Paisley, but you can't take Paisley out of the boy."

Goodwin's departure is softened by a pension pot of 8.4 million, worth 579,000 a year.

He also has 1.1 million shares worth a total 722,000 at last night's closing RBS share price.

In addition he has 454,000 nil-cost share options under a medium-term bonus plan currently worth about 298,000.

However, Goodwin did waive a 1.2 million severance payoff to which he would have been contractually entitled.

Even so, many "burnt" RBS investors will not have the cushion. The share price when Goodwin took over the bank in January 2001 was 442p. The closing price last night was 65.70p.

But at this level of business, it is often as much about ego as monetary rewards.

And Goodwin will be hurting at the style of his ousting after seven years as chief executive.

"This would not have been the manner or circumstances I would have chosen," he said, with some understatement.

Stephen Hester: A man who proves the doubters wrong

STEPHEN Hester, a former investment banker, has built a reputation on his ability to prove his doubters wrong.

But replacing the Royal Bank of Scotland's Sir Fred Goodwin promises to be the greatest challenge of his meteoric career.

The keen gardener, who is married to a banker, was described as confident, bright and "scarily" young when he took over as chief executive of British Land, one of the country's biggest property companies, in 2004. Without a day's experience of the sector, he stepped in to replace Sir John Ritblat, one of the most respected names in the property world.

His return to banking in an executive role will mark a full circle in Mr Hester's career. At Credit Suisse First Boston Mr Hester's work ethic took him almost to the top of the bank.

In 19 years there, he held various investment roles, before becoming chief financial officer in 1996, and then global head of the fixed income division. He was the bank's youngest-ever managing director and later commuted to New York as finance director.

Later, at Abbey National, during a brief stint as chief operating officer, he restructured the ailing business.

He was recruited by British Land in 2004, but in recent months he has gravitated back to banking.

In February he joined the board of Northern Rock as deputy chairman, before moving to a non-executive position on the RBS board.

Despite his CV, his appointment is a surprise. Experts point out his style is very different from Sir Fred Goodwin's. Whether that is to his advantage remains to be seen.

Pay rises to directors 'defying gravity' amid crisis

THE scale of top directors' earnings in recent months "defied gravity", with increases still running into double figures, according to a new report.

Average pay for leading executives in the FTSE 100 companies hit a record 3.5 million in the last financial year, an rise of 11.5 per cent on the previous year.

Incomes Data Services (IDS) said top executives in the 250 firms below the FTSE averaged over 1.5 million, a 10.4 per cent increase and also a record.

The report said directors were prospering while the economy was entering tougher times and workers risked losing their jobs.

Chief executives in top finance firms received average earnings of almost 3.5 million last year, while their FTSE 250 colleagues received almost 2.3 million.

Virtually all incentive payments to top bosses were running at higher levels than the previous year.

Five directors earned more than 10 million, although there were signs that some companies were already preparing for a downturn in the economy by making changes to incentive plans.

Steve Tatton, of IDS, said: "Greedy City bankers rather than fat cat directors may be currently attracting all the adverse comment, but unless remuneration committees avoid making toxic pay decisions over the coming year UK boardrooms may soon find the spotlight returning to their pay packages.

"If there is ever a time for the pay-for-performance culture that has gripped UK boardrooms in the past decade to live up to its promise, it is when the economy enters stormy weather.

"The proof of the pudding will be when large numbers of directors do not receive any incentive payments as a result of deteriorating corporate performance."

Meanwhile, a separate report found that bonuses awarded during this year's main "bonus season" were 1.5 billion up on last year.

But the rise – from roughly 26.5 billion to 28 billion – did not come from the financial services sector.

RHIANNON EDWARD