Financial News

  • 7 May 2013, 8:48

Sainsbury's To Bank On Lloyds Buyout

The supermarket chain J Sainsbury will next week move to take full control of its banking operations by striking a deal to buy out its partner, Lloyds Banking Group.

I have learnt that Sainsbury's is on the verge of an agreement with Lloyds that is expected to cost it several hundred million pounds.

Insiders said that a deal was likely to be announced alongside the retailer's full-year results on Wednesday.

Sainsbury's is understood to have been keen to acquire full control of the joint venture, called Sainsbury's Bank, for some time. Buying the Lloyds shareholding will allow it greater freedom to develop and market new banking products and services.

Launched in 1997, Sainsbury's Bank has 1.4 million active customers, according to the company. The business offers insurance, loans and savings products.

Supermarkets including Tesco and Sainsbury's have bold ambitions to take on the major high street banks.

They believe there is an opportunity to do so because of growing consumer mistrust of the industry's dominant players, fuelled by the banking crisis and the emergence of subsequent mis-selling scandals.

Tesco plans to launch current accounts within the next year, while Marks & Spencer has also been trialling the provision of banking services in some of its shops.

In 2008, Tesco struck a deal similar to the one planned by Sainsbury's, which involved it paying 950m to acquire the 50% stake in its personal finance arm from Royal Bank of Scotland.

People close to the talks between Sainsbury's and Lloyds said that various commercial and service agreements would continue to exist between them following next week's deal.

Sainsbury's Bank is run by Peter Griffiths, the former head of the Principality Building Society, who was appointed to the role last November.

The sale of its stake in Sainsbury's Bank should benefit Lloyds, which is 41%-owned by taxpayers, by bolstering its capital base at a time when regulators are forcing British banks to augment the amount of capital they hold in reserve.

Lloyds is also examining the sale of Scottish Widows Investment Partnership, the fund management arm of its insurance business, as well as a stake in its international wealth management operations.

The joint venture with Sainsbury's is one of many legacy holdings taken on by Lloyds after its rescue of HBOS, the mortgage lender which came close to collapse in the autumn of 2008.

Lloyds declined to comment, while Sainsbury's said it did not comment on speculation.

The supermarket chain does not plan to update the City next week about the future of Justin King, its chief executive, following Sky News' disclosure last month that its board has hired headhunters to work on succession planning for the role.

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