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Will Sainsbury’s supermarket bank rebound from £ 21million loss?

The banking arm of Britain’s second-largest supermarket chain delivered a rotten set of results on Wednesday when it revealed that a profit of £ 48million in 2019-2020 turned into a loss of £ 21million. pound sterling.

In an ad containing a basket full of bad news, Sainsbury’s Bank revealed its revenues fell 23% to £ 341million, deposits 19% to £ 5.1bn, loans fell by 27 percent to 5.4 billion pounds and the number of its customers slipped 14. percent to 1.8 million.

However, despite the difficult year, the bank remained optimistic about its future. The supermarket said it expected its financial services arm, bought outright from Lloyds Banking Group in 2013, to return to profits next year and then double by 2024.

In the red: Sainsbury’s financial services arm fell to a loss of £ 21million in the 12 months leading up to the end of February 2021

The coronavirus pandemic has hit the supermarket bank’s credit card and personal loans, which have fallen by £ 600million and £ 800million respectively, and have seen demand for travel money and withdrawals money dried up, which also contributed to her losing it.

But while he expects lending and demand to pick up, the results also point to a bank in transition.

Once seen, along with rival Tesco Bank, as an upstart challenger to the big names of Britain’s high streets in the early to mid-2010s, it officially surrendered in September 2019 when it pulled out of the mortgage market.

Having failed to progress in a fiercely competitive and increasingly less profitable market, he decided to cut his losses.

Andrew Montlake, managing director of mortgage broker Coreco, told This is Money at the time that “ the margins were no longer there and his mortgage division was almost certainly struggling to wash their face. ”

Subsequently, mortgages fell by £ 600m in the 12 months ending February 2021, with more of the £ 1.3bn currently in mortgage assets expected to fall off its pounds over the years. Next 12 months. As a result, fewer deposits were required from savers.

Not so in the money: Former Sainsbury CEO Mike Coupe shut down the money taps for Sainsbury's Bank in September 2019

Not so in the money: Former Sainsbury CEO Mike Coupe shut down the money taps for Sainsbury’s Bank in September 2019

Former managing director Mike Coupe announced two years ago that the supermarket would no longer invest capital in the bank, which, with the exit from the mortgage market, made it look like a real challenger.

Responding to Wednesday’s results, Clive Black, head of research at Shore Capital, said: ‘Sainsbury’s Bank has been a car accident for a few years now, with massive capital and operating expenses driving returns ridiculous.

‘Mike Coupe has decided to stop the withdrawal of funds’, which he said stood at £ 1.4bn, while’ new leadership has been introduced and a much more focused bank has been created. Like Tesco, the challenger bank left some time ago.

Sainsbury's closure of its mortgage business led to a £ 600million drop in mortgage lending in 2021

Sainsbury’s closure of its mortgage business led to a £ 600million drop in mortgage lending in 2021

The bank insisted it didn’t expect to need more capital, and Black noted that “ the headline numbers were skewed by first-half performance in 2020.

“ The second half of the year has been better and we feel it is on track for the overall goal of doubling 2019 profits by 2024, although this remains a low return on investment. ”

Since he appears to be banking on a rebound in demand from current and new customers for everything from credit cards to travel money, rather than new products, he hopes his calculations are correct.

After all, there doesn’t seem to be any cavalry coming over the hill. Although it was reported late last year the supermarket was listing Sainsbury’s Bank and its balance sheet now at £ 5.4bn, but there does not appear to have been a taker.

Dr Black added: ‘Sainsbury’s was approached last year for an offer but nothing was said yesterday which suggests to us that interest may have cooled.

“We would probably have at least alluded to the work in progress. Looks like it’s reverted to the original plan.

However, some were more skeptical of the bank’s prospects and suspected the supermarket was still looking for the till.

James Blower, founder of The Savings Guru and advisor to savings banks, said: “The results are fascinating. Although the pandemic had an impact on the bank, loans fell by £ 2bn in total, with all areas affected and income from travel money and ATMs were also affected.

“ While Sainsbury’s thinks they have a strategy to make a difference, there are other players who are doing credit cards and loans better, who can also access low-cost funds through retail savings.

“ Given that, I would be surprised if a more likely outcome were not that Sainsbury’s is looking to sell its financial services division and get out of space. ”

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