On the day that Northern Rock admitted that it will need another £3bn of taxpayers’ cash as it splits itself in two, the Times reports that supermarket behemoth Tesco is one of several bidders sniffing around the ‘good’ bank that it’s trying to create. Tesco is keen to ramp up its banking activities, on the not-unreasonable grounds that we’re all so distrustful of our banks that there’s room for a new market entrant – and buying the Rock would be an easy way to expand its customer base. But it’s unlikely to be the only interested party – and does it really need to anyway?
Northern Rock admitted today that it was technically in breach of its capital requirement rules – although the FSA has given it the go-ahead to keep trading as it tries to split itself into a ‘bad bank’, housing all its dodgiest assets, and a ‘good bank’, including everything else. The word from Whitehall is that the Government is apparently keen to sell off the good bank sooner rather than later, and it’s easy to see why: by flogging the newly-cleansed Rock for a hefty return, the Treasury gets to look good before the upcoming General Election (even if taxpayers might earn even more if we hang onto it a bit longer). And a sale would be quicker and easier than a flotation.
If this does happen – and presumably it’s dependent on the European Commission rubber-stamping the separation – the Times reports that Tesco has shown a ‘provisional interest’ in buying the Rock, as have Richard Branson’s Virgin Money and various cash-rich private equity funds. Tesco signalled its intentions to take on the high street banks when it spent nearly £1bn buying out RBS from the two firms’ joint venture last year. Andy Higginson, the man in charge of Tesco Bank, reckons he’ll have at least 100 branches opening in supermarkets over the next few years, attracting customers who have become disillusioned with their normal banks. So there’s some logic to it.
On the other hand, one major benefit of buying the Rock would be its ready-made branch infrastructure – and since it already has 2,000 stores nationwide, Tesco doesn’t exactly need that. It’s also shown little interest in dabbling in mortgages, where the Rock did most of its business. And if it’s hoping to benefit from the damage the financial crisis has done to big banking brands, it would seem an odd move to buy its highest-profile ne’er-do-well. The strategic appeal for someone like Virgin seems much more obvious.
This month’s MT includes an in-depth feature on how our biggest retailers are taking on the high street banks. Read ‘Supermarkets branch out into banking’ online now.
In today's bulletin:
National Express reeling as East Coast mainline nationalised
Tesco to bid for Northern Rock?
Rose lives to fight another day as M&S shows signs of life
Industry recovering - but Diageo cuts 900 jobs
'35 Under 35' in focus: The engineers are coming