Barclays will buy most of Tesco’s banking operations for about £600 million, the companies revealed today.
The deal follows Sainsbury’s announcement last month that they will be winding down their banking business.
The number two British supermarket chain said they would instead offer financial products through third parties.
It also comes ahead of a crucial strategy from Barclays alongside its full-year results on 20 February.
The strategy updated will come amid investor unease about its stock’s underperformance relative to rivals.
Operations
Barclays will take on Tesco’s existing banking operations in credit cards, loans, and savings. This will add £8.3 billion of unsecured loans and around £6.7 billion of deposits to the bank.
Tesco will retain all other existing activities of their banking, including ATMs, insurance, travel money and gift cards.
Shares in Tesco were up 1.4% following the news, while Barclays was down 0.3%.
About 2,800 Tesco Bank workers will transfer to Barclays.
Strategic Partnership
Barclays and Tesco have also formed a strategic partnership, initially for 10 years, that will see Barclays offer Tesco-branded banking products and services.
The bank will also use Tesco’s Clubcard loyalty scheme.
Tesco will receive fees of £50 million a year.
The acquisition and partnership are subject to regulatory approval and are expected to be completed in the second half of this year.
On the partnership, Barclays’s chief executive C.S. Venkatakrishnan said, “This strategic with the UK’s largest retailer will help create new distribution channels for our unsecured lending and deposit businesses.”
Tesco said the majority of the proceeds and a previously announced special dividend of £250 million paid by Tesco Bank in August 2023 would be returned to shareholders through an additional share buyback.
The retailer said the deal would boost its balance sheet, and it also stands to gain around £100 million after the settlement of its regulatory capital.
It said it expected to make annual adjusted operating profit from the partnership and retained activities of £80 million to £100 million – more than half the year’s expected profits from Tesco Bank.
It added the deal would be “mildly accretive” to earnings per share.
Read More: Tesco Q3 And Christmas Trading Statement: 2023/24
