The majority of Tesco’s banking division is set to be sold to Barclays in a deal valued at up to £1 billion.
The largest retailer in the UK, which has been negotiating a deal with HSBC and Lloyds, among other big lenders, said that all 2,800 employees of Tesco Bank would eventually move to Barclays as part of the agreement.
The only aspects of the sale are its credit card, loan, and savings banking businesses.
The broader financial services assets of Tesco Bank, such as gift cards, cash machines, and insurance, will stay with Tesco.
The bank informed its five million customers that they would be contacted in due time and that they did not need to take any action.
For Tesco Bank’s credit cards, unsecured personal loans, deposits, and operational systems, the banking behemoth anticipates paying almost £600 million.
The sale frees up £7.7 billion in capital-intensive assets and £6.7 billion in financial liabilities from the supermarket’s balance sheet, allowing Tesco to concentrate on its vast retail empire.
The sale, subject to regulatory clearances, signals the beginning of a strategic partnership between Tesco and Barclays that will last for the first ten years, according to AJ Bell investment director Russ Mould.
Tesco added that up to £400 million more was expected after the conclusion of several other processes. Under its proposals, the whole sum will be given back to shareholders as a share buyback.
“The supermarket gets a chunk of cash upfront and an annual income from the partner linked to brand licensing, using its channels to grow the proposition, and Barclays being part of the Clubcard scheme.”
“Barclays gets to sell its products, albeit under the Tesco name, to a bigger pool of individuals,” he expressed in a note.
The UK’s largest retailer declared that “the partnership will allow us to offer customers Tesco-branded banking products and services, benefiting from the power of Tesco Clubcard, the UK’s largest loyalty programme, in addition to exploring other opportunities to offer value to Tesco and Barclays customers.”
“Under the terms of the agreement, we will receive annual income for the use of the Tesco brand, for growing the customer base through Tesco channels, and as a result of Barclays’ participation in the Tesco Clubcard program.”
Regarding the deal, Tesco’s chief executive, Ken Murphy, said: “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.”
In 2019, it sold its current mortgage book to Lloyds for a sum of £3.8 billion.
The Barclays chief executive, Coimbatore Sundararajan Venkatakrishnan, further said: “This strategic relationship with the UK’s largest retailer will help create new distribution channels for our unsecured lending and deposit businesses.”
“We are able to bring our expertise in partnership cards developed over decades in the US to enhance further the highly successful Tesco Clubcard loyalty scheme.”
“This partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business.”
On Friday, as the markets opened, Tesco shares surged 2%, while Barclays shares surged 0.5% when the deal was announced.
- Published By Team Timeswire