And the little one said, “Roll over,” and there were six in the bed, and the little one said, “Get out of my bed! Who do you think you are, trying to jump onto my mattress?”
As one by one the banks either join the ranks of the public sector – Northern Rock; fight for their survival – Bradford and Bingley; get swallowed up by the Spanish – Alliance and Leicester; or find themselves the subject of rumours about being broken up – HBOS; along comes a new, brash bank, full of big ideas and, frankly, full of promise.
Tesco is planning to launch a bank.
At the moment its financial services arm is a joint venture with RBS. But, at a time when no one seems to have much money, it is planning to buy its partners out for £950m. One assumes RBS is pretty happy about that.
Tesco’s plan for its bank is bullish. It’s targeting a £1bn a year profit within ten years. To put that in perspective, in 2007, Lloyds TSB enjoyed profits before tax of £3.9bn. HBOS raked in nearly £6bn. So, okay, Tesco does not expect find itself in the premier league of banks for a while.
On the other hand Alliance and Leicester made £602m profit in 2007. As for the few remaining building societies, the Nationwide enjoyed £781m profits last year, so certainly if Tesco hits its targets it will find itself near the top of the Championship Division for banks and building societies.
The current financial arm of Tesco does not have any mortgages on the book, so it rates as a low risk business.
Moving forward, any well-backed bank which chooses to launch an assault on the mortgage markets will find itself looking at a market-place which is wide open.
Mortgages might not be a good place to be right now, but that will change eventually. Get the timing right, and a massive opportunity awaits.
Tesco also has the advantage that it is not tarnished by the credit crunch. Right now, banks are not popular with the public; a new bank with a recognized brand name can turn this antipathy to its advantage.
The retailer also has its network of stores – it engenders a fair amount of trust among its customers, and of course has a healthy balance sheet.
Tesco is also the type of organization that will benefit from the credit crunch. We may be cutting back on luxury items, but we always need to eat. And Tesco clothes are pretty cheap too.
The credit crunch is a time of opportunity. Companies are going cheap. Financial services companies are pursuing defensive strategies. If you are rich and bold, now represents a time to clean up.
This means of course that sovereign wealth funds find themselves with a chance to buy bargain Britain. But it’s not only overseas businesses that enjoy such an opportunity.
All in all, then, a bold move by Tesco. Then again, there might not be much room in the bed, but while the giants are snoring, or perhaps tossing and turning trying to shake off a nightmare, a nice patch of clean bed beckons Tesco.
PS. Talking of opportunity in crisis: it was revealed this morning that Abbey is now the UK’s top mortgage lender – having overtaken Halifax. It just goes to show what you can achieve in times like these when your parent company is in rude health.
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