SHARES in Royal Bank of Scotland plunged as much as 8.2% in the wake of news of the departure of chief executive Stephen Hester as the Government prepares to sell its stake ahead of the next General Election.

The stock finished the day down 10.6p, or 3.3%, at 315p, wiping £650 million off its market value leaving it worth £19.3 billion.

Meanwhile, one of the possible contenders for Mr Hester's job finance director Bruce Van Saun told an industry conference there are "further meaningful savings" to be made from cost cutting at the bank.

RBS announced after the stock market closed on Wednesday that Mr Hester will step down later this year after its board, with the backing of 81% shareholder the Treasury, decided it wants a new chief to oversee the sale of the taxpayer's stake.

But City analysts warned this risked destabilising the company.

Gary Greenwood, analyst at Shore Capital, said: "We believe Mr Hester has done an excellent job in guiding the company towards safer waters following its near death experience in 2008. As a result, he was also well liked by the market, we think, so for the company to dispose of his services earlier than required is a mistake, in our view."

Shailesh Raikundlia, analyst at Espirito Santo warned Mr Hester's exit creates "greater uncertainty" at the bank and warned of a "possible management void".

Nic Clarke, banking analyst at Charles Stanley, said: "We believe that this announcement smashes any lingering pretence that RBS is being run on an arm's length basis."

He added: "We believe this is a damaging development for RBS."

Investec analyst Ian Gordon said: "The manner of Stephen Hester's departure is deeply unsatisfactory.

"Officially, no front-runner to succeed him has been identified.

"If true we believe it is negligent."

Mr Van Saun, who is stepping down as finance director to oversee the flotation of RBS's Citizens Bank in the United States, was quickly established as one of the favourite to replace Mr Hester.

Among the other potential contenders are Nathan Bostock, currently head of restructuring and risk and a former Abbey National finance chief, who is due to become the next finance director at RBS.

Richard Meddings, finance director at Standard Chartered is also a possible hire although his chances have been damaged by an investigation into breaches of anti-money laundering activities at the bank.

J Sainsbury chief executive Justin King has also been mentioned. He would not be the first former retailer to run a bank given that ex-Asda executive Andy Hornby was in charge of Halifax Bank of Scotland when it required a bail-out.

Some in the City also fear that chairman Sir Philip Hampton could be preparing to step down.

"Chairmen normally do five, six or seven years, that's the normal lifespan," Sir Philip, who has been in post for four-and-a half years, told Bloomberg TV.

But he added that other aspects of board succession will only be addressed once it has a new chief executive in place.

Mr Van Saun told the Goldman Sachs European Financials Con-ference that RBS will set out plans for more cost cutting at its half-year results in August, noting that its operating expenses have fallen 18% in the last five years.

"We believe there are further meaningful savings that we can realise without impacting the service we provide to our customers. We are actively scoping these further cost savings opportunities and will report more at the H1 results."

RBS's managers aim to reduce running costs to £13.2bn this year, from £14.6bn in 2012, Mr Van Saun said "with further significant cost reduction in 2014 and 2015".

The bank has already cut around 41,000 jobs since 2008, including a reduction of 2000 at its investment banking arm announced this week.

RBS employs around 12,000 people in Scotland, most of them in Edinburgh.

The bank has already revealed that it intends to close around 10% of its UK bank branches.