Royal Bank of Scotland's new chief executive is planning to review the bank's strategy "from first principles" as it adjusts to the prospect of becoming a government-controlled bank.

Stephen Hester, who yesterday replaced Sir Fred Goodwin at the helm of the 281-year-old bank, signalled that RBS would shrink its balance sheet and that its operations in the UK would be at the core of the bank's future - suggesting a significant unwinding of the expansion that has characterised Sir Fred's eight years as chief executive.