Tesco PLC the world's third-biggest retailer by sales, has its eye on the U.K. mortgage market as the global banking turmoil takes out major players and reshapes the industry.
The Cheshunt retailer may offer mortgages through its bank as a result of the significant changes within the banking industry, Andrew Higginson, its finance and strategy director, said Tuesday, though any mortgage offer is at least 12 months away.
Tesco says it did not believe offering mortgages was viable before the market turmoil, which has claimed several big U.K. banking companies, including Northern Rock PLC and Bradford & Bingley PLC. In a highly competitive market, U.K. bankers were offering high-risk mortgages, often requiring little collateral or down payment.
In July, Tesco said it could eventually create a full-service retail bank after agreed to buy out Royal Bank of Scotland Group PLC's half of a financing joint venture. Tesco agreed to pay $1.69 billion for the 50% stake in Tesco Personal Finance Group Ltd., which provides financial services including loans, credit cards, and savings accounts.
Terry Leahy, Tesco's chief executive, called the deal a "timely move," saying cash-strapped consumers are worried about their savings. The deal is expected to be completed next month.
Tesco says offering the services of a full retail bank could help it bring in an annual profit of $1.8 billion over the next few years. It currently makes $711 million a year from its retailing operations, which also include telecommunications and Internet-shopping units.
Mr. Higginson said account openings at Tesco Personal Finance doubled last week as the turmoil heightened. He would not provide specific figures.