Not just any bank services, M&S bank services

Retailer Marks & Spencer Plc (>> Marks and Spencer Group Plc) plans to launch in-store banking services next month backed by HSBC (>> HSBC Holdings plc), competing with the rest of Britain's established but unpopular high street banks.

Retailer Marks & Spencer Plc (>> Marks and Spencer Group Plc) plans to launch in-store banking services next month backed by HSBC (>> HSBC Holdings plc), competing with the rest of Britain's established but unpopular high street banks.

After the financial crisis blew up in 2008, many Britons blamed the country's biggest banks for its economic problems, so M&S, a stalwart of town centers for nearly 130 years, hopes to lure banking customers its way.

The public is also angry that senior bankers such as Barclays (>> Barclays PLC) chief executive Bob Diamond have pocketed multi-million pound bonuses while the country has slid into two successive recessions and many are out of work.

"This bank will be built on M&S values; putting the customer at the heart of the proposition and delivering the exceptional service that sets us apart from the competition," Chief Executive Marc Bolland said in a statement on Friday.

Analysts said the tie-up made sense but was unlikely to boost M&S profits significantly during the economic downturn.

The group, which serves around 21 million customers each week, said 50 M&S Bank branches would open in its stores across the UK over the next two years, with the first scheduled to open in July at its flagship Marble Arch store in London.

M&S is following a number of other retailers which have moved into financial services in recent years.

In the United States, the world's biggest retailer Wal-Mart (>> Wal-Mart Stores, Inc.) is offering cheque-cashing services at more than 3,000 stores. The advantage for the retailer is that the customer is likely to spend the money in the stores.

Wal-Mart has also introduced a service enabling customers to have their tax refunds deposited on to a Wal-Mart cash card.

Wal-Mart backed away from efforts to operate a U.S. bank in 2007 amid opposition from the banking industry and lawmakers but it has banking licenses in Mexico and Canada.

Tesco (>> Tesco PLC), the world's third-biggest retailer, announced plans to set itself up as a UK bank in 2008 but progress has been slow. In February Tesco said it was delaying the autumn launch of a current account service until next year while it awaited the implementation of new industry-wide systems to help customers switch accounts more easily.

Some analysts have argued that it has missed an opportunity to take custom from established players during the financial crisis and lagged other new entrants into UK retail banking such as Virgin Money <VA.UL> and Metro Bank.

British supermarket chain J Sainsbury (>> J Sainsbury plc) also offers banking services in conjunction with Lloyds (>> Lloyds Banking Group PLC)

Like other British retailers, M&S has not had an easy time during the downturn. Last month it slashed its sales growth forecast, signaling it expects consumer spending to remain weak.

Peel Hunt analyst John Stevenson doubted the company's move into banking would contribute to a broader recovery.

"It makes perfect sense. There are very few trusted brands on the high street, and M&S are one of them. They've got a customer base that has a pretty good credit profile," he said, but added: "Is this going to be a major part of getting the company back to a billion pounds of pretax profit? No."

NOT JUST ANY CUSTOMERS

The venture gives HSBC, Europe's biggest bank, an opportunity to attract high quality new depositors among M&S's relatively affluent and older customers.

"The risk return is quite attractive," said Oriel Securities analyst Mike Trippitt. "You've got an unemployment level that is skewed towards youth, and to some extent that is a market you don't want to be hitting too hard as a bank," he said.

Shares in Marks & Spencer were down 1.9 percent to 334 pence at 1500 GMT, with the wider market <.FTSE> down 0.7 percent. HSBC shares were 1.2 percent lower at 528.9 pence.

Paul Mumford, portfolio manager at Cavendish Asset Management, a top 100 M&S investor, said he doubted the venture would have much impact on the retailer's profit.

"It will be run by HSBC so, in profitability terms, I don't expect it to have a very meaningful impact, but nevertheless if people get cards and are doing more of their shopping with those, that won't be a bad thing," he said.

Britain has been keen to stimulate competition to its big five retail banks - Lloyds, RBS, Barclays, HSBC and Santander UK (>> Banco Santander, S.A.) - which dominate lending.

M&S's banking venture is a more full-on entry into banking than the services provided by Tesco and J Sainsbury, which are predominantly offered online.

M&S said current accounts would be made available from autumn 2012, and mortgages will be offered at a later date.

"Branches will be open twice as long as traditional high street banks; mirroring M&S store opening hours and enabling customers to bank while they shop, seven days a week," M&S said in a statement.

(Additional reporting by Sinead Cruise, Sarah Young and Adveith Nair in London and Jessica Wohl in Chicago; editing by David Stamp)

By Matt Scuffham

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