Tesco progresses mortgage ambitions

by Gill Montia

Story link: Tesco progresses mortgage ambitions

Tesco is considering applying for a separate credit rating for its financial services business, The Financial Times has reported.

The supermarket giant announced plans to enter the UK’s retail banking sector a year ago, after becoming sole owner of Tesco Personal Finance (TPF), previously a 50/50 joint venture with Royal Bank of Scotland.

At the time, Tesco’s chief executive, Sir Terry Leahy, said he was convinced that services could potentially provide a larger and faster growing market than food.

TPF already offers credit cards plus savings and insurance products and the retailer has plans to launch a current account in late 2010 and possibly expand into mortgages within the next two years.

Obtaining a separate rating from credit agencies could allow TPF to fund a mortgage business by borrowing on the wholesale money markets, rather than through its parent company.

However, no separate stock market listing for TPF is anticipated.

Earlier this year, Defaqto issued a report on retail banking in which it concluded that supermarkets could be in a strong position to compete with High Street banks, once their existing personal finance offerings are expanded to include current accounts.

In addition to strong brand recognition, supermarkets have the ability to “cross-subsidise” by for example offering free current accounts to customers who spend a certain amount in-store each month.