Scotland in line for Tesco finance jobs spree

 

© The Herald Originally published: 26/6/2009

Tesco Personal Finance delivered an apparent slap in the face for Royal Bank of Scotland when it said it was forming an insurance partnership with a rival of the bank that is expected to create 1500 UK jobs, writes Mark Williamson.

Chief executive Benny Higgins confirmed that Tesco Personal Finance was in exclusive talks with Fortis to form a partnership that could result in a significant number of jobs being created in Scotland.

This is a prospect that could be welcomed by politicians in Scotland at a time when firms in the key financial services sector are shedding thousands of jobs.

However, any pleasure may be tempered by concern at the possibility of job losses at Royal Bank, which stands to lose valuable business that it currently wins from Tesco Personal Finance.

The proposed partnership will see the Belgo Dutch insurance firm providing services like underwriting and claims handling for home and motor policies that will be sold by Tesco Personal Finance.

The company has built up a substantial business in these areas, drawing on the insurance expertise provided by Royal Bank, which owns the Direct Line insurance business.

Formed as a joint venture between the giant retailer and Royal Bank in 1997, Tesco Personal Finance has garnered a 4.5% share of the UK car insurance market, The operation currently has around 1.5m home and motor insurance customers.

Tesco bought out Royal Bank's stake for £950m in July in the expectation that it could achieve faster growth if it had 100% control of the venture.

Higgins has made it clear that he sees scope to win business from rivals by applying the formula that helped Tesco to become a dominant force in UK retailing to financial services.

Yesterday, he said: "This is a natural and orderly transition that we agreed when the buyout deal was signed. It is no surprise to them Royal Bank or anybody else. It was agreed we would migrate banking and insurance over."

We were looking for an arrangement that would give us control over price, over the customer experience and allow us to leverage the technical skills of someone who has been in the business for a long time."

He said a key element of the appeal of Fortis was that the company's core business was the provision of "white label" services for other firms that sell insurance under their own brands.

This means that Fortis need not worry that sales of its policies might be cannibalised by the partnership.

Fortis insures more than 6.7m customers with partners that include Marks & Spencer. It employs around 3,000 people with a head office in Eastleigh, Hampshire.

Tesco Personal Finance opened a new headquarters in Edinburgh earlier this month, when Higgins confirmed it was considering providing current accounts and mortgages and might enter the business banking market.

Yesterday he said Tesco Personal Finance was considering sites for a base for the insurance partnership. Asked if this might be in Scotland he said "yes".

A spokesperson for Royal Bank said: 'We are focused on growing our wholly-owned insurance brands. It has not come as a surprise that the newly independent business is seeking a new partner to provide it with some of its insurance products on revised terms."

Separately, analysts at Cazenove investment bank upgraded their recommendation on Royal Bank shares to outperform from underperform.

They wrote: "While we are cautious on the outlook for UK banking, the attraction of RBS is that it plans to shrink and it has sufficient assets outside of the politically-sensitive areas of UK retail banking that it can shed assets."

Royal Bank and Fortis both ran into serious problems after combining with Santander of Spain to buy ABN Amro in 2007.