Royal Bank of Scotland (RBS) was last night engaged in intricate negotiations with ministers over the details of the bank’s entry into the Government’s toxic debt insurance scheme, having agreed the preliminary terms of a deal to be announced on Thursday that will result in the bank remoulding itself as a UK-focused lender.

However, it is understood that the Government is also linking the terms of entry to its asset protection scheme to the protection of British jobs, as well as moves by RBS to ditch parts of the bank that lost it £28 billion last year.

The bank will identify on Thursday which business lines it intends to retain. RBS is expected to say that it will dispose of many that are not required to support its British corporate and retail customers. It will also detail the amount of money it hopes to save by cutting staff, although it is not expected to say how many will go. It is believed that the cull could affect as many as 20,000 staff.

There is intense political pressure on RBS not to make British branch staff redundant, although the bank will be expected to shed hundreds of investment banking staff. Insiders said that redundancies could hit the bank’s US operations, where it owns Charter One, a Midwestern commercial bank, and Citizens, an East Coast retail bank, the hardest.

Analysts have estimated that access to the Government’s asset protection scheme could cost the bank as much as £8 billion, although payments would be staggered over a period of ten to 15 years. RBS will be keen to do everything possible to bring down the fees for the deal.

It was still unclear last night which parts of RBS’s investment banking divison faced the axe and insiders said this would be linked to a decision about which assets the bank puts into the toxic insurance scheme and on what terms.

However, sources close to UK Financial Investments – the body set up to manage the Government’s interests in nationalised banks – added that there could be some support for RBS to hold on to revenue-generating assets within the investment banking division if a deal could be reached.

Bank insiders said that its entire leveraged lending division, which lent to buyout houses, could be shut down. RBS is not expected to say that it will offload all its overseas business, but the bank has hired two investment banking advisers – Morgan Stanley and UBS – to gauge interest from possible bidders for its Asian and US assets.

The two banks have also been advising RBS on the broader strategic review, which was begun by Stephen Hester, chief executive, after the Government’s bailout.

Morgan Stanley has canvassed bidders interested in RBS’s Asian assets, many of which were bought as part of its disastrous takeover of ABN Amro.

RBS has operations in Hong Kong, Singapore, Japan and India, with the latter viewed as the jewel in the crown because India’s banking sector has high regulatory barriers to entry.

ANZ, the Australian bank, and Standard Chartered, which is cash rich and has a strong Asian network, are believed to be potential buyers.

RBS’s US assets will be much harder to sell as American banks have been hit much harder by the global banking crisis than their Asian rivals.

Fears grow for Cattles

Concern for the survival of Cattles, the sub-prime and doorstep lender, is growing as it delayed its annual results and issued a profits warning. Shares in the group, based in West Yorkshire, slumped 9.75p, or 73.6 per cent, to 3.5p yesterday, taking its market value from £80 million to £21.2 million. Its annual results were supposed to be published next Thursday. The company is trying to renegotiate a £635 million loan, which comes due in July. It is planning to cut 1,000 jobs and shut an office in Hull.

Its business, including Lewis, the debt reovery firm, Welcome Finance and a business providing working capital to small and medium-sized businesses, is aimed at those who may have difficulty finding mainstream lending, many of whom are likely to struggle with repayments. Cattles abandoned an application to become a deposit-taking bank last month.

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