Sir Fred Goodwin and Sir Tom McKillop to be replaced.

The chiefs of Royal Bank of Scotland will be forced out under the government’s bailout deal.

As reported in the Telegraph, chief executive Sir Fred Goodwin and chairman Sir Tom McKillop will be replaced by Stephen Hester, formerly of the Abbey, and Sir Philip Hampton, currently chairman of Sainsbury's.

The government deal will also see a future limit on executive pay and shareholder dividends.

RBS had already raised £12bn in the biggest ever rights issue in Europe and therefore Goodwin and McKillop faced increasing scrutiny after the bank needed more capital.

The Telegraph recalled that Goodwin was nick-named ‘Fred the Shred’ for cutting 18,000 jobs after the NatWest takeover. He has also been criticised for paying too much for ABN Amro, which was bought for £49bn last year.

The announcement followed a disastrous fall in RBS shares, which plunged almost 40% on Tuesday. RBS owns NatWest, Direct Line and Coutts.