Great leap forward for 'Bank of Tesco'

Published on Thursday 20 August 2009 21:33

IT ALREADY dominates Britain's grocery market, and yesterday Tesco took another giant leap in its attempt to take on the financial services industry.

Alistair Darling, the Chancellor, joined Benny Higgins, chief executive of Tesco's fledgling banking operation, to announce it was hiring 800 staff for a call centre in Glasgow. It was news the beleaguered sector badly needed and a clear signal of Tesco's intent.

The jobs had already been well-trailed and they will be at a new customer service centre on the site of STV's former headquarters, which is to be up and running in the first half of next year. It will also be home to 500 employees from Royal Bank of Scotland, the original joint-venture partner in the retailer's financial operation.

Higgins admitted a 5 million Regional Selective Assistance (RSA) grant from the Scottish Government influenced his decision to base the jobs in Glasgow. He said the grant had been a "very important part of the decision to pick Glasgow ahead of other parts of the UK".

The Scottish Government said it awarded the grant to support an investment of 10.2m in Glasgow. First Minister Alex Salmond claimed the economic benefit for Glasgow, particularly in the current climate, was "hugely significant".

He said: "Tesco is already Scotland's largest private-sector employer, with more than 26,000 staff across the country. The growth of its financial services arm brings an additional, total job creation of 1,200 in the last twelve months for Scotland."

As well as a commitment to organic growth, Higgins has failed to dismiss speculation Tesco Personal Finance (TPF) is interested in acquisitions to build its presence as a bank. It has been linked with Northern Rock, which analysts have said TPF may buy from the UK government. It is also interested in Cheltenham & Gloucester, now Lloyds has reversed its earlier decision to shut the network.

Higgins said that, as a high-profile organisation, TPF was the subject of all sorts of speculation. "We have a strategic and sensible policy of making no comment," he said.

TPF began 11 years ago as a joint venture with RBS to sell a range of products, from general insurance to personal loans and credit cards. However, unlike Sainsbury's financial services operation which remains part of Lloyds, Tesco wanted to go it alone.

Last July, it signed a 950m deal to buy out RBS. It appointed Higgins, a high-profile figure in Edinburgh from his time with Standard Life, RBS and HBOS, to run TPF.

In June, it moved from Edinburgh's South Gyle to purpose-built headquarters in the city's Haymarket, where it already had more than 250 employees and plans to take on a further 200.

TPF does not have standalone branches. However, it has six branches in Tesco stores, including its flagship at Silverburn, near Glasgow, on which it plans to build.

According to analysts, the timing of TPF's decision to build a full-service bank cannot be faulted. Andrew Hobson, of Williams de Broe, said: "The banking sector has been tarnished and its reputation is even lower than usual. Tesco is a good brand, offering decent quality and value."

TPF already has its own banking licence and is signing up partners to replace RBS on a number of products. In June, it announced the transfer of general insurance business to Fortis UK. It also recently signed a deal with Friends Provident, which will supply protection products.

Although TPF has more than six million customers, it is still a minnow compared with the likes of Lloyds and RBS. Two big gaps remain to be filled in TPF's product offering – current accounts and mortgages.

But Higgins said: "It's a matter of when, not if, we launch our two big strategic products: mortgages and current accounts."

Hobson said: "It will be highly profitable when TPF does enter the mortgage market. But it will take it a long time to become a big player."