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Is Wesfarmers Ltd planning a move into financial services?

While it’s certainly not the first time that rumours have sprung up about conglomerate Wesfarmers Ltd (ASX: WES) and its possible ambitions to move further into the financial services arena, a recent report in The Australian Financial Review has reignited chatter.

The report drew investors’ attention to a submission from Coles (owned by Wesfarmers) to the financial services inquiry which pointedly discussed the restrictive financial system which made it difficult for new competitors to offer savings accounts.

Coles has already been offering insurance products for some time and the recent sale of its insurance underwriting business to Insurance Australia Group Limited (ASX: IAG) has many questioning how Wesfarmers’ management plans to redeploy the substantial incoming funds.

Like its supermarket peer Woolworths Limited (ASX: WOW), the opportunity presented to Coles from having literally millions of Australians coming through its doors each week surely makes cross-selling opportunities a key growth plank for the future. However unlike Woolworths who only do retailing, Wesfarmers’ management has experience in many different business lines, which creates a huge advantage for shareholders as execution risk from new business ventures should be reduced.

A move into financial services could open up a world of possibilities for Wesfarmers and create a major pipeline for future growth; keep an eye on the outcome of the inquiry as positive changes could be great news for Wesfarmers and present a buying opportunity for investors.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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