business news in context, analysis with attitude

The Economist reports that UK retail leader Tesco is looking into the possibility of expanding into the mortgage business, saying that despite the fact that many banks seem to be in trouble during a time of economic crisis, “mortgages are looking quite attractive as a line of business.”

The retailer is considering the move into the mortgage business as it prepares to take full control of its Tesco Personal Finance (TPF) business, which until now has been a co-venture with retail bank RBS. TPF current has more than five million customers for what essentially is a savings, credit card and loan business, and unlike in the US – where Walmart has been prohibited by federal regulations from getting into the financial services business – there is no legal impediment to Tesco offering mortgages as well.

According to the Economist, “Tesco has the freedom to expand into banking, touting its well-known brand, because its main business is thriving, even in tough markets. Global retail sales grew by 14% and profits by 11% compared with the same period last year.”

KC's View:
It is somewhat startling that the UK’s Competition Commission continues to raise questions about whether big retailers such as Tesco have too much market share, but there are no apparent obstacles to the company expanding its banking presence.

That said, I wonder if the US would have the same sorts of financial problems if executives from companies such as Walmart and Tesco had prominent roles in the financial services business. My guess is no, that these executives would be smarter about running the banking biz and would end up offering consumers better prices and better values.