Tesco to take on high street banks after £950m RBS deal

TESCO last night signalled an aggressive move into retail banking after concluding its long-awaited £950 million deal to buy out Royal Bank of Scotland from the two companies' finance joint venture.

The UK's largest retailer revealed ambitious plans to take on its former partner and other high street banks in the battle for consumer current accounts and insurance business.

Tesco used yesterday's announcement of the completion of the deal with RBS to reveal that it wanted to set up its own full-service retail bank.

As well as banking services, the business will offer telecoms, internet shopping and other services. Tesco hopes it will make annual profits of £1 billion in a few years, up from under £400 million now.

Sir Terry Leahy, the grocery chain's chief executive, said yesterday the group now planned to move Tesco Personal Finance (TPF) "to the next level".

He said: "With a renewed focus on growth in the UK and internationally we can unlock the true potential of Tesco's retailing services.

"Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence."

The move is the latest sign of the retailer's determination to branch out of its core grocery operation, in which it has a market share of more than 30 per cent.

Tesco is already a major force in DVDs, books and clothes, and is expanding abroad, recently opening stores in the United States.

Andrew Higginson, Tesco's finance and strategy director, will become chief executive of retailing services, stepping down as finance director.

In a signal of the supermarket chain's determination to compete with the high street banks, Scottish banker Benny Higgins, – who founded TPF when he was chief executive of retail banking at RBS, will be chief executive of the new banking arm.

Tesco has also lured RBS's head of cards and direct finance, Iain Clink, to become TPF's new finance director. TPF's current chief executive, Robin Bulloch, will remain with RBS.

TPF currently offers services including both general and car insurance, loans and credit cards, savings products, an insurance comparison website and a network of cash machines.

Car insurance and credit cards are currently big business for TPF while home insurance and savings are less so.

The sell-off to Tesco is part of chief executive Sir Fred Goodwin's plans to boost RBS's balance sheet by offloading assets. RBS said it expected to make a £500m profit on the Tesco sale.

RBS will continue to offer all the back-office services to the group, including banking services, call centres, management of the group's 2,700 ATMs and insurance services.

RBS's insurance subsidiary, UK Insurance, will continue to underwrite TPS's £260m insurance business for at least three years.

If RBS is successful in selling its insurance business – including Churchill and Direct Line – UKI will transfer to the new owners.

Goodwin said yesterday : "Over the last ten years RBS and Tesco have built a strong and successful joint venture. It is appropriate for TPF to move to single ownership for the next stage of its growth and we wish them well with their future plans."

Tesco shares were down 1.8p, or 0.5 per cent to 375.5p. RBS slid 4.1 per cent or 8.75p to 206.25p.