Hester warns Darling as he plots the route to recovery

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In an open letter to shareholders, Hester today warned of the side-effects of the Treasury's so-called asset protection scheme, the insurance against RBS's exposure to bad loans being underwritten by the taxpayer.

"While conceptually straightforward, [the APS] has enormous operational complexity, which is taking time to resolve," he said. "For example, HMG has requested regular reporting on up to one billion lines of data covering assets in the scheme and our own systems and data quality are not well designed for the APS purpose."

Hester today, however, also outlined his key plans to "earn our way back to the respect that our company so badly needs".

Those are:

* Financial restructuring: the removal of £500 billion of assets, achieved through the rundown or sale of assets now classed as non-core. That, says Hester, will not only improve RBS's balance sheet, will reduce the bank's exposure to risk it no longer has the appetite for and reduce the pressure on RBS's stretched management;

* Core business restructuring: a "major endeavour", said Hester, leading to "renewed investment to revitalise our customer proposition and service levels";

* Cross cutting management and cultural change: an end to the "short-term opportunism" leading to a "make-it-happen drive for results with a new-found but enduring humility, transparency and openness".

Those strategic plans, said Hester, would be overlaid by financial targets to be hit by 2013:

* Improving ratings: to restore RBS's credit rating to AA from its current BBB and pull its key core Tier 1 capital ratio up from a weak 4% to a more financially stable 8%;

* Reducing exposure: to bring the loan:deposit ratio from 156% to around 100%, cut its unsecured wholesale funding from £343 billion to below £150 billion and push liquidity reserves up from £90 billion to around £150 billion;

* Creating value: to achieve return on equity of 15% from the current 28% and slash the cost:income ratio from its current high level of 79% down to around 45%;

"These targets are not forecasts," he said. "This is the greatest professional challenge we will ever face."