LONDON (Bloomberg) — Royal Bank of Scotland Group Plc plans to cut costs by more than £1 billion ($1.44 billion), partly by scaling back investment banking, as chief executive officer Stephen Hester tries to rescue the lender, a person familiar with the talks said.

RBS will split itself into two units over the next three to five years, with one entity including the UK and other "core" businesses and the second holding operations that aren't central to the Edinburgh-based lender, said the person who declined to be identified because the talks are confidential.

"This is a very sensible solution and it will lead to a strengthening of the bank," said Howard Wheeldon, a senior strategist at BGC Partners in London. "We have to remember that there are some very good parts in Royal Bank which need to be able to prosper and thrive."

The UK's biggest state-controlled bank is also working to put about £200 billion of assets into a government insurance plan designed to protect lenders from potential losses, the person said. RBS said last month it may post a loss of as much as £28 billion, the biggest ever for a UK company, when it reports 2008 results on February 26

RBS spokesman Neil Moorhouse declined to comment when contacted by Bloomberg News. A spokesman for UK Financial Investments Ltd., the body that manages the government's shareholdings in banks, also declined to comment.

While the bank plans to remain in major financial centres around the world, it will withdraw from some countries in Asia and discontinue some product lines, the person familiar with the talks said.

The Sunday Telegraph reported that the non-core subsidiary will hold the Asian and Australian units RBS acquired as part of its purchase of ABN Amro NV, RBS's aircraft leasing unit, and the mortgage and lending assets of Charter One in the US.

RBS is considering plans to sell all or part of its Australian division along with other assets in Asia, three people familiar with the plan told Bloomberg News last week.

The cost-reduction measures will result in about 20,000 job losses, with more than half in the UK, the London-based Sunday Times said, without citing anyone. RBS hasn't estimated the size of possible job cuts, the person familiar told Bloomberg News.

RBS has fallen 93 percent in the past year as the bank posted $14.3 billion of losses and writedowns on toxic assets.