Sainsbury’s ends talks to sell its banking unit

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J Sainsbury stopped selling his banking arm after concluding that a deal would be of no benefit to shareholders.

The London-based retailer received expressions of interest in its banking business in November last year.

However, in a statement issued on Friday, he said the board of directors had now concluded that a sale “offered no better shareholder value than what will be achieved by retaining Sainsbury’s Bank”.

“We continue to make progress in strengthening and simplifying our financial services business in line with our strategy and we remain comfortable with the consensus earnings forecast for the division,” the company added.

Analysts expect the financial services industry to reach an underlying profit of £ 26million in fiscal year 2021-2022, rising to £ 43million the following year.

The complicated presence of a banking division has the potential to deter bidders for the group.

Following the buyouts of rivals Asda and Wm Morrison this year, the UK’s second-largest supermarket chain has been the subject of speculation about a private equity approach.

The group’s shares fell 1% at the start of the session.

The banking unit provides services such as mortgages, credit cards and insurance to over 2 million customers, but has been strangled by low interest rates and a drop in demand for services such as l travel money and vending machines during the pandemic.

In the year through March 6, it recorded an operating loss of £ 21million, largely due to a provision against expected defaults from cash-strapped customers during the pandemic which remains largely unused.

Investors were increasingly worried about the low profitability of the bank and the need for regular injections of capital. In response, CEO Simon Roberts and his predecessor Mike Coupe both pledged to stop injecting cash and put in place a program to improve profitability and reduce risk.

Sainsbury’s halted new mortgages in 2019 to focus on less capital-intensive services such as travel money, insurance and credit cards.

The savings rates offered by the bank were sharply reduced, the weighted average falling to 0.44% last year from 1.18% the previous year. As a result, £ 1.2bn of deposits were withdrawn, but total lending also fell 27% to £ 5.4bn, improving capital ratios.

However, the cost-to-income ratio remains high at 71 percent. Management aims to reduce this figure to “around 50%” by 2024.

Many retailers, including Marks and Spencer, John Lewis, and Tesco, entered financial services in the 1990s, when interest rate spreads were wide and loan growth was strong.

But since the financial crisis, mortgage loans in particular have become more competitive and less profitable. Tesco sold its mortgage portfolio to Lloyds Bank for £ 3.8 billion in 2019. It and Sainsbury’s increasingly view their financial services as businesses that strengthen customer relationships and support loyalty in the food industry. base, rather than as “challenger banks”.

M&S and John Lewis have adopted a different strategy. Both use HSBC to offer private label services with an emphasis on credit cards, insurance and investment products rather than mortgages and loans.

John Lewis is expanding his financial services business as he seeks to diversify his revenue streams beyond retail. It recently launched individual savings accounts in collaboration with online wealth manager Nutmeg and renewed its insurance offering.


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