Smile to move into mortgages and shopping

smile.co.uk, the first internet-only bank, yesterday said it will branch into selling mortgages and open an Egg-style "shopping zone". It also reported customers numbers have topped 200,000 since it opened in October last year.

Chief executive Mervyn Pedelty shrugged off the arrival of other net banks, including Abbey National 's cahoot.com and "first-e.com, plus the planned entry of Halifax's Intelligent Finance. He said new customers continue to join Smile at the rate of 20,000 a month and 80% come from outside Smile's parent company, Co-operative Bank.

"We are continuing to gain new customers at a consistent rate and I believe that IF, when it finally launches, will expand the market rather than hit our customer base."

There were "absolutely no plans to float" Smile in the way Prudential floated its net bank, egg.com. But it will start a secure shopping zone for customers along the lines of Egg's offering.

Co-op Bank will return to mortgage lending next month for the first time in more than 10 years and begin offering mortgages through Smile a few months later.

The investment in Smile held back profits growth at Co-op Bank in the first half of 2000. In the 28 weeks to July 22, pre-tax profits rose to £55.2m from £50.1m, with costs rising from £134.8m to £141.6m.

"Major investments in Smile and new mortgage processing systems had the effect of increasing overall costs by 5%," Mr Pedelty said. He refused to specify the size of Co-op Bank's investment in Smile but insisted it is far lower than reported figures for other start-ups. Smile directly employs only 130 people and Mr Pedelty said it was on target to move into profit in two years' time.

• Bradford & Bingley said yesterday it has spent £30.1m in fees and costs for demutualising, ahead of its listing planned for December 4. Excluding exceptional costs, pre-tax profits jumped 76% to £140m.