Tesco to enter retail banking following RBS buyout

Tesco is to compete with High Street banks after it has bought out RBS’s (RBS) 50% share in Tesco Personal Finance (TPF) in a deal worth £950 million.

TPF, which was launched in 1997 as a joint venture between Tesco and RBS, sells general insurance, credit cards, personal loans, savings products, and has an online insurance comparison website. It has over 5 million customers in the UK, Ireland, Hungary and Poland.

Over the last decade, the joint venture has been successful, according to Sir Fred Goodwin, RBS group chief executive, and he wishes Tesco well with the solo venture.

Commenting on the move, Tesco’s chief executive Sir Terry Leahy, said financial services are bigger and faster-growing markets than food. In today’s economic climate where consumers are cutting back, now is a good time for Tesco to expand its presence.

RBS will continue to provide the financial products sold by TPF and Tesco believes that personal finance could deliver £1 billion in profits per year, over 50% more than the current level of just under £400 million per year.

Benny Higgins, former HBOS and RBS retail chief, has been recruited to lead the new TPF arm.

Approximately 200 people who work for RBS on TPF will transfer to Tesco but the company’s head office will remain in Edinburgh.

RBS recently raised £12 billion via a rights issue but is currently struggling to sell its insurance arm, which includes Churchill, Direct Line, Privilege, UKI and NIG.

The announcement from Tesco is certain to be a concern for High Street banks who are due to announce falling profits over the next few weeks due to further write-downs against investment in US mortgages.

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