Tesco Banks on Banking After Posting £1.4bn H1 Profit

02 October 2008

CHESHUNT, UK: The etymology of 'credit' and 'crunch' acquires a very different meaning at Tesco, the UK's dominant supermarket group that currently grabs one pound sterling in every seven spent within the British Isles.

'Crunch' is what Tesco does to its competitors; 'credit' is what it now intends to offer to its multimillions of customers

Tesco ceo Sir Terry Leahy saw the current economic disaster looming long before it hit the planet with all the force of Hurricane Kyle.

[As did WARC News: Thirteen months ago we reported the Bank for International Settlement's warning that "years of loose monetary policy have fuelled a dangerous credit bubble, leaving the global economy vulnerable to another 1930s-style slump".]

Although the supermark group has for eleven years offered a range of products from car insurance to credit cards, it did so only as a sales agent for the Royal Bank of Scotland, a relationship terminated by Tesco in July when it decided to go it alone.

Capitalising on the solidity of its image amid the wreckage of many traditional banks, Tesco now intends to trade as a retail bank, offering mortgages and current accounts.

"Timely" is the apt term used by ceo Leahy to describe the move. "The economic downturn offers an excellent opportunity for Tesco to make huge strides as a fully fledged retail bank".

Adds finance director Andrew Higginson: "Customers are looking for a service they can trust, somewhere it's safe to put their money, and I think there are lots of opportunities as a challenger brand."

As to mortgages: "We haven't gone into mortgages for the simple reason we couldn't see a way of making money, but you have seen the return of more rational pricing in the market - and that would potentially open up the opportunity for us to go in.”

The firm's latest numbers underscore the bedrock on which its new banking operation is founded.

Underlying H1 profits of £1.4 billion ($2.49bn; €1.77bn) rose year-on-year by 10.3%; while total sales increased 14.1% to £28.1bn, with international sales up 26.8%.

Data sourced from The Times (UK); additional content by WARC staff