Sainsbury's Bank chief is ousted after £5m loss

Tim Pile stepped down as chief executive of Sainsbury's Bank yesterday amid mounting frustration about its faltering performance.

Rising costs and bad debts have resulted in steep losses at the bank, a joint venture between the supermarket and HBOS.

Only one year into its three-year turnaround plan, Sainsbury was forced last year to abandon its target to boost banking profits by £90m. Sainsbury's Bank lost £5m in the first half of its year after its bad debt charge soared 68 per cent to £49m.

The bank, which is turning away three in every four loan applicants, is expected to lose £10m over the full year, putting it £57m behind the original profits plan. Similar difficulties have hit profits at Sainsbury Bank's most successful rival, Tesco Personal Finance, a joint venture with Royal Bank of Scotland.

Sainsbury has enjoyed something of a renaissance under the chief executive Justin King, who has kept his faith in the company's brand to drive the bank's sales. But City experts question whether he got his strategy right.

Simon Maughan, at Dresdner Kleinwort Wasserstein, said: "Sainsbury's shot for profits from the word the go. That backfired because they didn't capture enough customers. Tesco, on the other hand, aimed for scale and let profitability follow."

Jim Kinloch, Sainsbury Bank's finance director, will head the business until a permanent replacement is found for Mr Pile, the chief executive since 2002. Benny Higgins, who oversaw the success of Tesco Personal Finance while at RBS, will soon take charge of retail banking at HBOS.

Sainsbury remained tight-lipped about whether Mr Pile will receive a pay-off. As he does not sit on its board, the supermarket is not required to make his pay public.

Sainsbury shareholders will expect the new boss to revitalise the bank so that it may realise its early promise. Its shares edged 1.5p higher to 329.5p.

Sainsbury's Bank notched up its first profits two years after an explosive launch in 1997, but started to run out of steam in 2002. It continues to win customers, but margins - the difference between the rates at which it lends and borrows, and a key measure of profitability - have been squeezed. Jobs have gone to try to cut costs, and the bank has pulled out of mortgage lending.

Mr Pile's departure fuelled speculation - later denied - that Sainsbury may look to sell its 55 per cent share of the business, with HBOS seen as the obvious buyer.

Tesco remains the supermarkets' most successful financial services operation. It notched up pre-tax profits of £202m in 2005, and has more than 5 millioncustomers. Marks & Spencer sold its M&S Money financial services arm to HSBC last year, though it continues to earn fees from sales of personal loans, pet insurance and the &More credit card.

Asda's parent company, Wal-Mart, does not publish separate figures for sales at its subsidiary, but the supermarket group has begun selling its insurance range, which is backed by Norwich Union, more aggressively.