The retailer said the acquisition would enhance shopper loyalty by offering accessible, high-quality and tailored products. It added that a 42-month transition plan was in place to move onto flexible, modern banking platform.
The acquisition – which will be funded from internal resources – was expected to deliver cash payback within eight years.
Commenting before the sale was confirmed, Shore Capital analysts Clive Black and Darren Shirley welcomed the investment.
‘Years of underperformance’
“Such a move signals a greater commitment to the financial services market by Sainsbury, which after many years of underperformance from a low profitability business, has begun to make reasonable headway in recent times,” they said.
“We can see the case for full control supporting much needed complementary profit diversification, while Lloyds probably welcomes simplification and funds. Sainsbury remains very wedded to the UK grocery market in all of its forms, which has helped its investment case in recent times, when investors have been more defensively minded.”
Shore Capital described Sainsbury Bank’s product range as “modest” and looked forward to seeing if the retailer would take advantage of simplified current account rules due to be introduced later this year.
Tesco Bank had not yet introduced current accounts. They were due to reach the market next year, noted Black and Shirley.
‘Exciting transaction for Sainsbury’
Sainsbury boss Justin King said: "This is an exciting transaction for Sainsbury’s which has the potential to deliver significant benefits to our shareholders, customers and colleagues. We have 23M transactions each week by customers who know and trust the Sainsbury’s brand.
"We see a great opportunity to increase the number of bank customers by offering accessible, high quality financial services products which reward customers who bank and shop with us. We expect the bank to become an important source of profit diversification and growth, building on the strengths of our core business.”
Peter Griffiths, who was appointed chief executive of Sainsbury’s Bank in November 2012, will continute to lead the bank.
A separate board with banking and financial services experience is being established for the bank. The team will include: an independent non-executive chairman as well as four independent non-executive directors and three non-executive directors appointed by Sainsbury’s.
Roger Davis has been appointed as the bank’s new independent non-executive chairman.
The deal depends on the approval of the Prudential Regulation Authority.
Meanwhile, Sainsbury’s full year results published today (May 8) have drawn praise from City analyists.