Morning Business News, 23 February: RBS and Lloyds recovery plans, Northern Rock, ITV, Centrica and more.

Royal Bank of Scotland (LON: RBS) will this week unveil plans to shrink its balance sheet by up to a quarter over the next three to five years as Stephen Hester, chief executive, sets out a strategy to return the state-controlled bank to the private sector, reports the FT.

Hester is due to announce on Thursday the creation of a separate division for assets worth £250bn-£300bn which will be wound down or sold over the next few years. He will also sketch out a future for RBS as a smaller retail and commercial bank concentrating mainly on the UK and US.

RBS is also to be split into a “good bank” and “bad bank” in a dramatic rescue restructuring in which assets worth several hundred billion pounds will be put up for sale, the Sunday Times reported this weekend.

Stephen Hester, RBS chief executive, will outline the plans this week as he unveils Britain’s biggest-ever corporate loss of up to £28 billion. He will cut costs by more than £1 billion a year, a move expected to lead to the loss of about 20,000 jobs, more than half of which will be in Britain.

The Sunday Telegraph added that Hester will announce plans to create a "non-core" subsidiary into which about £300bn of unwanted assets will be placed.

Lloyds seeks cover for assets

Lloyds Banking Group (LON: LLOY), which includes HBOS, is also expected to seek cover for hundreds of billions of pounds of assets, the FT reports.

Lloyds, along with RBS, have submitted plans to insure almost £500bn of assets as part of the Treasury's scheme to kick-start lending and halt the economy's slide towards a full-scale depression.

Northern Rock creates "good bank"

Northern Rock, meanwhile, will effectively create a "good bank" by announcing plans today to pump around £14bn into the mortgage market under new, more stringent lending criteria.

Northern Rock, the only active lender to be fully nationalised, will receive as much as £10bn more from the taxpayer to fund the new mortgage lending. It has already repaid more than £15bn of the £26bn Bank of England loan, reports the Telegraph.

ITV faces debt recovery challenge

ITV (LON: ITV) chairman Sir Michael Grade is considering a raft of radical measures to reduce the broadcaster's debt burden, including scrapping its dividend, making disposals, and raising funds from shareholders, according to sources.

Executives are believed to be mulling whether to sell ITV's profitable Freeview business, SDN, along with social networking site Friends Reunited, writes the Telegraph.

Switzerland accuses US of "shock" tactics

Switzerland’s finance minister has accused US authorities of “shock” tactics to compel holders of undeclared UBS accounts to come forward, but warned that court action to discover the names of thousands of clients would not succeed.

Hans-Rudolf Merz, finance minister and Switzerland’s head of state this year under its rotating presidency, defended the Swiss government’s role in prompting the world’s biggest wealth manager to breach hallowed bank secrecy and last week reveal some 250-300 client names to the US, reports the FT.

The Obama administration is in the mean time promising to flesh out its plan to repair the US banking system this week as investors and Wall Street executives express concerns about the creeping nationalisation of their industry, according to the Independent on Sunday. 

In other news

European leaders have agreed on draconian measures to crack down on hedge funds, rating agencies and all financial instruments, going beyond proposals by Prime Minister Gordon Brown for soft regulation designed to avoid stifling free enterprise.

The move to regulate hedge funds poses a potential threat to an industry that has been a mainstay of London's financial growth over the last decade, reports the Telegraph.

Centrica (LON: CNA) is under fresh pressure to drop its £3.1bn plan to buy a 25% stake in British Energy, the UK's nuclear generator.

The owner of British Gas, which is expected to report an operating profit of just under £2bn this week, is facing mounting opposition to the proposed purchase from EDF, after a collapse in wholesale energy prices, which critics say has destroyed the economic logic of the deal, reports the Times.

Emblaze, the Israel-based software and IT investment company that, under the name Geo Interactive Media, saw its stock market value multiply tenfold between June 1998 and January 2000, has been targeted by Eitan Eldar and Roy Gill, two of the country's best-known activist investors, reports the Times.

BP (LON: BP) has become the latest large UK company to implement a pay freeze, The Times has learnt. The salaries of virtually all the senior and middle managers who work around the world for Britain's largest company by market value will be the same in 2009 as they were in 2008.

William Hill, the bookmaker and betting shop owner, is set to confirm plans to raise as much as £350m in a fully underwritten rights issue alongside its annual results on Friday.

The company is expected to become the latest to ask shareholders for cash as part of a wider plan to help refinance group debt, writes the FT.

The chief executive of O2 UK has warned that Britain could fall behind in moving into the digital age if the industry and the regulators do not urgently settle their differences.

In his first interview since taking over the role last year, Ronan Dunne told The Independent, “Everybody agrees UK plc needs to extract a digital dividend. We want the UK to be a leader and UK plc to benefit. We don’t want it to fall behind.”