Sunday 8 September 2019 2:35 pm

Sainsbury’s planning major changes to struggling bank arm

Sainsbury’s is plotting a radical overhaul of its loss-making banking arm as it reconsiders its business model in the wake of its failed merger with Asda.

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The household name is weighing up its options ahead of a meeting with investors in two weeks’ time.

The retailer could dump its mortgage book, according to the Sunday Times, just as its rival Tesco did last week, citing competitive pressure.

Supermarket banks, which put pressure on high-street names when they launched in the 1990s, have struggled to cope with low interest rates, mortgage competition, and digital challengers.

Sainsbury’s Bank made a £34m statutory loss last year while underlying profit fell 60 per cent to £24m, adding to the grocers’ woes in the wake of the botched Asda merger. 

The company as a whole saw its statutory profit fall 42 per cent to £239m due in large part to the costs of preparing with the merger, which was blocked by regulators in April. Its underlying profit rose 7.8 per cent to £635m, however.

Clive Black, head of research at Shore Capital Markets, said the grocer “has invested an awful lot of money both in capital expenditure and in operating expenses” into the bank for a “derisory profit”.

“Retail banking is very highly regulated and in that respect requires processes and systems that require a lot of capital.”

He said the bank face stiff competition. “It’s digital business like Monzo that are starting to attract younger business-like people that are more of a challenge to the likes of Barclays and Lloyds than Tesco and Sainsbury’s.”

Chief executive Mike Coupe is under pressure to inject some energy into the grocer to help it move on from the failed Asda deal. 

An exit from the mortgage market could let Sainsbury’s Bank focus on the less capital intensive activities of unsecured lending and insurance. 

“Can a notable improvement be anticipated?” Black asked. “If it can’t, pouring good money after bad doesn’t seem a sensible strategy to us.”

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A spokesperson for Sainsbury’s said it does not comment on speculation.