(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, May 8 (Reuters Breakingviews) - Sainsbury’s (SBRY.L)
has taken another baby step towards becoming a real bank. The UK
supermarket chain confirmed on May 8 that it would buy out
Lloyds Banking Group (LLOY.L) from their 50:50 joint venture,
but continued to shy away from offering the main products that
banks offer - current accounts and mortgages. The apparent
timidity could be a holding strategy.
Getting into retail banking proper makes sense for the
group. Operating margins in supermarket retailing are less than
5 percent. Royal Bank of Scotland (RBS.L) and Lloyds were at 38
and 37 percent, respectively, in 2012. With an established brand
and a big property estate, Sainsbury’s has the potential to be a
strong new entrant, and it doesn’t carry the bad debts of
established players. While it outperformed rival Tesco (TSCO.L)
in 2012, the group could also do with diversifying.
Sainsbury’s official line is that it can diversify
organically. It reckons full control of its savings and personal
loans will enable it to bolster the number of its supermarket
customers buying financial products - currently just 5 percent.
That justifies a long-term strategy of building its own bank
platform over the next four years, instead of relying on Lloyds’
There’s a better reason to hold fire. The UK current
accounts market has long been dominated by a few big players.
Newcomers face dauntingly high barriers to entry, but there have
been encouraging recent signs that regulators want to tackle the
oligopoly by opening up the payments system, the shadowy
plumbing that banks need to be able to offer in order for
current accounts to process multiple transactions like standing
orders and direct debits.
To become a real bank right now and build the right
platform, Sainsbury's would have to splash out a big part of the
capital expenditure it wants to spend on new store space. If an
ongoing government consultation can find an alternative way for
new entrants to plug into the payments system, that investment
might prove superfluous.
Add in the movable feast of UK bank capital requirements and
a current review of the domestic mortgage market, and there’s a
case for waiting. When the fog clears, Sainsbury’s should turn
circumspection into action.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Sainsbury’s on May 8 announced revenue for the 52 weeks to
March 16 of 25.6 billion pounds, up 4.6 percent, and a 6.2
percent jump in underlying pre-tax profit to 756 million pounds.
- The firm, which has a 16.8 percent share of the UK grocery
market, also confirmed it would buy out Lloyds Banking Group’s
50 percent stake in Sainsbury’s Bank for 248 million pounds.
- Sainsbury’s said that like-for-like sales in 2013/14 would
grow between 1 and 1.5 percent, after sales excluding fuel grew
at 1.8 percent in 2012/13.
- Justin King, the supermarket’s chief executive, said he
saw himself staying at the firm for several more years.
- The UK government published its consultation of reforming
the UK bank payments system on March 26. It closes on June 25.
- At 1100 GMT, Sainsbury’s shares were trading at 383 pence,
down 3.3 percent.
- Reuters: CEO King commits to Sainsbury's after beating
- Reuters: Sainsbury's seeks full control of banking arm
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Pierre Briançon and David Evans)
Keywords: BREAKINGVIEWS SAINSBURY/
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