Barclays has struck a deal with Tesco to acquire the supermarket’s retail banking business for around £600m.
The Big Four bank is set to acquire Tesco Bank’s 2,800 staff and form a 10-year partnership with the retailer to distribute credit cards, unsecured personal lending and deposits using its brand.
The news comes after months of speculation and media reports that Tesco was reviewing a sale of its banking arm amid a wave of consolidation sweeping through the mid-sized banking sector.
Tesco said will receive around £600m in proceeds from the deal, as well as a further £100m in net cash after “the settlement of certain regulatory capital amounts and after transaction costs.”
Barclays expects to take on around £4.2bn of gross credit card receivables, £4.1bn of gross unsecured personal loans and £6.7bn in customer deposits if the transaction happens at the end of July.
It estimated that Tesco Bank’s tangible net assets would be around £960m at that time, including an expected credit loss allowance of some £490m.
Tesco will retain all other existing activities of Tesco Bank, including insurance, ATMs, travel money and gift cards. It said these are “capital-light, profitable businesses with a strong connection to our core retail offer.”
The retailer said the proceeds from the deal, combined with the £250m special dividend Tesco Bank paid its parent in August 2023, would net it £1bn in total.
Tesco said most of the cash from the deal would be returned to investors via an incremental share buyback.
The pro forma annual adjusted operating profit for Tesco of the new partnership with Barclays as well as the retained operating activities is expected to be in the range of £80m-£100m, more than half of the expected profit from Tesco Bank.
C.S. Venkatakrishnan, Barclays’ chief executive, said: “Similar to our acquisition of Kensington Mortgages last year, this partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business.”
Ken Murphy, Tesco’s CEO, added: “Tesco Bank is a strong business that has helped millions of loyal customers to manage their money for more than 25 years.
“As we look to the future, our aim is to be the best provider of financial services in the UK, with this strategic transaction and partnership with Barclays unlocking greater value for customers and for our business.”
Rival supermarket Sainsbury’s announced last month that it would shutter its banking division and opened the door to a potential sale.