Sainsbury's hires Rice following buyout deal

Sainsbury's move comes after it posted a better-than-expected 6.2% rise in underlying pre-tax profit to £756m for the year to March 16, and it said it would press on with its drive into the convenience store sector.

Sainsbury's chief executive Justin King said: "What we know is when you take a customer who is shopping with us, when they become a bank customer too it increases their loyalty and therefore their spend with our business.

"Only one in 20 of our customers has a bank product.

"As we drive that we will see real benefits in the supermarket business too."

Last year the bank posted an 8% rise in customer numbers to 1.5m.

Yesterday Roger Davis, former chief executive of UK banking at Barclays, was appointed Sainsbury's Bank's chairman.

Lady Susan will serve on the main Sainsbury's board. Formerly chief executive of Lloyds TSB Scotland, she holds non-executive positions at the Bank of England and Perth-based power giant SSE,

David Tyler, Sainsbury's chairman, said: "She has wide experience as a non-executive director, and her career in retail banking is particularly relevant in light of the agreement to take full ownership of Sainsbury's Bank."

Sainsbury's will incur £170m in transaction costs and spend £90m on a technology platform.

Sainsbury's finance director John Rodgers said: "It is a low cost acquisition model."

But some in the City have worries.

Philip Dorgan, analyst at Panmure Gordon, cut his stance on Sainsbury's from "buy" to "hold".

He said: "The decision to buy out the Bank – while sensible – adds risk over the transition period."

Sainsbury's shares closed down 15.5p or 3.9% at 381p.

Tesco Bank had to delay its roll-out of new products after delays in transferring across accounts from RBS systems and systems problems two years ago.

And last month Co-operative Bank abandoned its plan to buy the 632-strong Verde branch portfolio, including Lloyds TSB Scotland, from Lloyds.

But Mr Rodgers said the Tesco transition was "a lot more complex".

Lloyds and Sainsbury's have mapped out a 42-month transfer plan. During this, 200 Fife-based call centre staff working for Lloyds will move to Sainsbury's Bank.

Currently, Sainsbury's Bank, headed by former Principality Building Society chief executive, Peter Griffiths, employs 300 people in Edinburgh and another 30 across the UK having expanded the workforce by 20% last year.

It expects to see a similar boost to employee numbers this year.

He said the bank's headquarters would remain in Edinburgh.

Sainsbury's said the bank's pre-tax profit, which rose 40% to £59m last year, will remain flat for the next two years.

But over the next five years it expects headline profit growth in the "high teens" in percentage terms.

In the grocery market, Sainsbury's has continued to add to its market share, which stands at 16.8%. But it sees little improvement in shopper sentiment. Mr King said: "They are very much downbeat about the future."

He said that customers continue to look at ways of using leftovers and have moved from brands to own-brand items, which account for more than half of Sainsbury's sales.

While it previously scaled back its growth plans along with other grocers, the company said it did not need to follow Tesco which wrote £804m off its landbank earlier this year to reflect sites it no longer plans to use.

"Not all landbanks are equal," Mr King said. "We do not have a lot of sites we are not going to develop."

Most of the expansion of its 1106-strong store portfolio will be convenience outlets, which will outnumber its supermarkets by the end of next year.

More than half of its 70-strong store estate in Scotland are convenience outlets after nine openings north of the Border last year.