Sainsbury’s to take sole control of banking venture

The UK’s third-largest grocer said yesterday it was in advanced talks to take full ownership of the bank. More details on its plans are expected to emerge alongside its annual results this week.

Edinburgh-based Sainsbury’s Bank was created in February 1997, with the supermarket taking a 55 per cent stake in the business and Bank of Scotland holding the rest. It became a 50/50 joint venture six years ago when Bank of Scotland parent HBOS – now part of Lloyds Banking Group – paid £21 million for an additional 5 per cent.

A spokeswoman for the retailer said: “[Sainsbury’s] is in advanced negotiations with Lloyds Banking Group to take full ownership of Sainsbury’s Bank. A further announcement will be made in due course.”

Taking control of the bank is expected to cost the group several hundred million pounds, but would give it greater freedom to develop new products and services.

It also puts the banking operation on the same footing as rival Tesco, which acquired Royal Bank of Scotland’s stake in Tesco Personal Finance – now called Tesco Bank – five years ago.

The Sainsbury’s deal could be announced alongside results on Wednesday, which are tipped to show a 5.3 per cent increase in pre-tax profits to £750m for the year to the end of March as chief executive Justin King maintains the chain’s improvement since his arrival in March 2004.

King joined from Marks & Spencer and has driven a turnaround at the grocer despite intense competition. Recent figures from research firm Kantar Worldpanel show Sainsbury’s was the only one of the big four supermarkets to grow market share during the 12 weeks to mid-April.

With a market share of 16.9 per cent, the group has gained ground on second-placed Asda at 17.5 per cent. But both chains remain well behind market leader Tesco, with 29.9 per cent.

Espirito Santo analyst Caroline Gulliver, who has pencilled in a pre-tax profit of £758m, said the group has performed strongly in the broker’s recent surveys, “with consumers increasingly choosing to shop at Sainsbury’s for their quality fresh and own-label products, confident that they won’t be overpaying for branded products”.

However, analysts at Jeffries warned that Sainsbury’s could struggle to maintain the pace of growth in its new financial year as Tesco ramps up the pressure.

They said: “Sainsbury’s ability to continue to deliver sustainable like-for-like outperformance is likely to reduce over the coming year. In particular, we note the absence of major events as well as the increasing maturity of the non-food business.

“First indications from the launch of Tesco’s Price Match suggest that this may prove to be a further challenge in 2013-14.”

Sainsbury’s profit from its share of the banking joint venture rose from £11m to £16m in the year to March 2012, and this is expected to have grown to about £25m in the last financial year.

The sale of its stake in the bank should benefit Lloyds, which is 39 per cent owned by the state, at a time when regulators are forcing banks to bolster their capital reserves.

Facts

• First bank launched by a major British supermarket

• Began trading in February 1997 as a joint venture with Bank of Scotland

• Has 1.4 million active customers

• Delivered a £16 million profit for Sainsbury’s in the year to March 2012