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Tesco bolstered by strong show in banking sector

SUPERMARKET giant Tesco signalled its Scottish-based banking operation is growing strongly as it abandoned efforts to break into the US grocery market with a review of its struggling Fresh & Easy chain.

HOT SEAT: Former RBS executive Benny Higgins runs Tesco Bank.
HOT SEAT: Former RBS executive Benny Higgins runs Tesco Bank.

Meanwhile, Tesco continues to come under pressure in the UK grocery market, where it is market leader.

Like-for-like sales, excluding fuel and value added tax, were down 0.6% year-on-year in the 13 weeks to November 24. That compared with a 0.1% increase in the prior quarter, which came after 18 months of falls.

Edinburgh-based Tesco Bank, which is run by former Royal Bank of Scotland and HBOS executive Benny Higgins, saw "good growth" in sales banking products and was "robust" in the more challenging insurance sector, the group reported.

Its sales were down 1.6% on last year which it blamed on the run-off of legacy insurance policies dating back to the joint venture with Royal Bank of Scotland which ended in 2008.

Tesco Bank also faced "challenging trading conditions" in motor insurance where com-petition has driven down prices. Tesco, which recently launched mortgages to compete with the established high street names, said banking customer numbers had increased, as had deposit balances.

The group said a review of loss-making Fresh & Easy could lead to the sale or closure of the 200-store chain that it launched five years ago.

Chief executive Philip Clarke said: "It just became clear to us the journey to sustainable returns was going to take too long.

"It's likely but not certain our presence in America will come to an end."

Tim Mason, Fresh & Easy's chief executive and deputy group chief executive, is leaving Tesco after 30 years with the grocer

Panmure Gordon analyst Philip Dorgan, who has a "buy" rating on Tesco's shares, said: "The decision on the US is a clear signal management is prepared to take difficult decisions and we expect many more to be made in 2013.

"It was obviously made easy by the fact Tesco has already received unsolicited approaches."

Many investors have been keen for Tesco to take action on its US business.

It has invested £1 billion in the operation but it has struggled as the credit crunch hit the western states where it opened its first outlets.

The market responded to the news by sending Tesco's shares up 10.8p, or 3.3%, to 337.45p.

Tesco shocked investors with its first profit warning in decades in January as it faced shoppers with shrinking disposable incomes and resurgent com- petition from established grocery chains as well as discounters.

Mr Clarke is overseeing a £1bn recovery programme which will add staff, smarten up stores and focus more on food.

Tesco said like-for-like sales in food grew 1.2 %, ahead of the market overall.

However, non-food sales have continued to fall, which Mr Clarke said "was not good enough".

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