Stephen Hester's departure as the CEO of U.K.-taxpayer owned Royal Bank of Scotland (RBS) has surprised London's financial sector with one major shareholder calling the move damaging and "plain stupid".
RBS shares dropped 5.9 percent on Thursday morning, after declining as much as 8 percent at one point during the first hour of trade.
Hester's departure after five years at the helm is said to be by "mutual agreement", but the move has rattled shareholders and a source close to the bank said there were internal divisions between Hester and chairman, Sir Philip Hampton.
(Read More: RBS CEO Hester to Step Down This Year)
"What has happened is plain stupid, badly organized and damaging for RBS," one big shareholder told CNBC.
A senior executive close to the bank said there was a "clear split in the way Stephen and Philip saw the bank." Hester was in favor of a bank with an international business, with "a number of business lines in a number of geographies," whereas Hammond's view was the bank needed to be "smaller and U.K. based."
RBS also announced plans to exit all structured retail investor products and equity derivatives to focus on core fixed income. The bank said the move will result in job losses, with Reuters reporting that as many as 2,000 employees will be let go.
Hester has been credited for restructuring the bank and shrinking its balance sheet after the 2008 financial crisis.
(Read More: UK Banks Return to Favor in Turnaround Year)