The summer of 2004 was a good one for Fred Goodwin. Four years into his time at the helm of Royal Bank of Scotland, it's fair to say he'd made his mark: top of the Scottish Power 100, incumbent European Banker of the Year, and to cap it all, a knighthood at just 45. Amid all the fawning adulation, Sir Fred probably failed to notice the lone, cautionary voice of the anonymous banker who warned in the Observer: "He will go on, unless something goes wrong – in which case I can't see many people jumping to his defence." Something did go wrong, of course, in the form of the worst financial crisis in decades; and Goodwin's defenders are indeed few and far between as he gets used to his latest accolade: FT Alphaville's World's Worst Banker Award, 2008.

Goodwin will writhe, as one friend said last week, at being labelled "some sort of inept banker" – after all, this is still the same man whose formidable business brain saw him turn RBS from a second-rate regional concern into an international superpower, spreading from China to the American Midwest. But he'd be the first to admit—now watching from the sidelines after an ignominious departure in October—that the numbers don't look good. A stunning plunge in value last week saw RBS shares trading at just 10 pence—a fall of 98 per cent from their 2007 peak—and with nearly three quarters of the company now in the hands of the state, commentators have begun to write off RBS as "not a bank, but a former bank." Pumped up by his throbbing ambition, they say, Goodwin's business model was a bubble that was bound to burst, leaving his firm grossly overextended when the credit crunch moved into its semi-apocalyptic post-Lehman phase. And with all the nation looking for a banking scapegoat as Britain sinks into recession, who better than "Fred the Shred" – with his irritating baby-face, his twin Ferraris, and the intimidating air of menace that led one RBS executive to whine: "You sense that he could tear you limb from limb, and you are ever so grateful when he doesn't."

Goodwin might have fared better had he retained a little more of the down-to-earth, Presbyterian values of his childhood in Paisley, where he was born in 1958. His law course at Glasgow saw him become the first member of his family to go to university, and he put his education to use as he rose up the financial ladder – first as an accountant, and later at Clydesdale Bank, where he became chief executive at the tender age of 37. It was there that he earned his famous nickname, "shredding" employees in their scores in a tireless drive for greater profitability.

It may not have endeared him to his ex-employees, but Goodwin's ruthless efficiency soon got him noticed at RBS's Edinburgh headquarters. Two years after his 1998 arrival, Goodwin masterminded the biggest deal in British banking history: RBS's £23.5bn hostile takeover of the troubled National Westminster Bank. This was a stunningly audacious move, something akin to a buy-out of Manchester United by Wigan, or an invasion of China by South Korea. NatWest was three times the size of RBS, and no hostile takeover of a major European bank had ever before been successful. But thanks to Goodwin, RBS pulled off one of the deals of the century, entering the banking major league at a stroke. Named chief executive in 2001, Goodwin basked in ever-growing profits and shareholder acclaim.

NatWest had barely been digested before Goodwin became hungry for more. His aggressive attitude spilled over into his statements to the press – early in his reign he caused a stir as he discussed possible "mercy killings" of weaker rivals. And he wasted no time in embarking on an aggressive acquisitions strategy, snapping up Churchill Car Insurance and the Irish mortgage provider First Active within his first year in charge. Even a humiliating mugging at one of his own cashpoints failed to dent Goodwin's swaggering enthusiasm, as he looked to expand RBS's international presence with a number of deals in the United States. By 2003, he was Forbes' Global Businessman of the Year.

The year of his knighthood might have felt great at the time; but in retrospect Goodwin will be wondering whether that was where things started to go wrong. The $10.5bn takeover of Charter One Financial made RBS the seventh biggest bank in America, but the price was widely considered too high. And when the following year saw Goodwin buy a five per cent stake in Bank of China, a top analyst warned that many saw Goodwin as "a megalomaniac who cares more about size than shareholder value." A chastened Goodwin finally promised to put a stop to the big acquisitions.

His ego was coming under threat from other quarters, as well. The construction of a vast new headquarters outside Edinburgh saw the Sunday Times run a series of stories that alleged, among other claims, that Goodwin had ordered the construction of a special kitchen for preparing scallops close to his office. An abortive libel action betrayed Goodwin's tendency to take himself unusually seriously – a trait well known to those familiar with the executive meetings known as "morning prayers," and Goodwin's "five-second rule," which dictated that his first response to a given situation was nearly always right.

This self-belief, ultimately, was Goodwin's undoing. In 2007, he put his gut instinct above his promise to his shareholders in launching a vast bid for the Dutch bank ABN Amro – right at the peak of the market. RBS was already using a dangerously small amount of capital to finance a large amount of lending. With ABN Amro now on board, the RBS group had acquired a huge level of exposure to the US subprime loan market, just in time for its disastrous collapse.

RBS's fortunes duly plummeted – but Goodwin didn't go down without a fight, carrying out Britain's biggest ever rights issue to raise new funds in April, even as shareholders were calling for his head. While RBS lurched into a new level of crisis in October, his confrontational spirit was still in full evidence as he said of the first government bail-out package: "You know, it's more a drive-by shooting than a negotiation." But the writing was on the wall, and within days Goodwin was out of a job, with nothing but an £8.4 million pension pot to console him. Still, there's always those awards to look forward to.