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Tesco Bank may have to distance itself from supermarket due to SFO probe: academic

Tesco Bank may end up being sold or enter into a new partnership with another bank, following Tesco plc’s financial woes, an academic has claimed.

Professor Michael Mainelli, below, management consultant, chairman and co-founder of commercial think-tank Z/Yen, said: “Given the egregious errors by other companies, especially banks, it would be irrational to suppose Tesco Bank’s customers would walk over a few million losses at Tesco Plc, when the big banks themselves have lost billions.

“That said, Tesco Bank may need to differentiate itself more, and I would not be surprised if it is given a revamp.

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“It is innocent of the group’s problems, and while it is unlikely that Tesco plc would completely divest Tesco Bank, it may be that it could forge another partnership in the market.”

He said this could be with a foreign bank seeking to make inroads into the UK market.

Reports over the weekend suggested Tesco could sell part of the bank, which has 6m customers, for £1bn. This would help finance the cost of turning around the troubled company.

When asked whether Tesco should sell the bank because of the parent company’s issues, Conservative MP Mark Garnier, a member of the Treasury select committee, said that was a matter for its board.

He said: “Tesco Bank is pretty small and in its early stages. I cannot think that there has been anything that would cause a regulator to have any worries other than the fact that there have been some questionable accounting issues at Tesco plc.”

Addressing the future of Tesco Bank, Matt Francis, press officer for Tesco plc, said: “We have a full business review under way. We are not going to comment on rumour and speculation.”

Key Facts

■ Founded in 1997, Tesco Bank was originally a 50/50 partnership between Tesco plc and Royal Bank of Scotland.

■ Since 2008 it has been a wholly owned subsidiary of Tesco after the company bought RBS’s share.

■ In 2013/14 it had profits before tax of £152.6m – up from £124m in the previous year.

■ Tesco Bank, based in Edinburgh, had a revenue of £1.bn in 2013/14.

(Source: Tesco plc)

In September, Tesco plc issued a profits warning after it presented an overstatement of income and an understatement of costs to the market, causing the share price to tumble.

Last week, the Serious Fraud Office announced it was launching a criminal investigation into the irregularities. On this news, the FCA revealed it would not be pursuing its own investigation.

A statement from Tesco Plc said: “Tesco has been co-operating fully with the SFO and will continue to do so.”

Tesco board directors did not receive bonuses in the last full year.

Adviser view

Lee Smythe, of Kent-based Smythe and Walter Chartered Financial Planners, said: “Tesco Bank serves a particular section of the community and some people are happy to do their banking there.