Tesco and Barclays have also formed a strategic partnership that will see the bank offer Tesco-branded banking products and services.
By James Sillars, Business reporter @SkyNewsBiz
Tesco has announced the sale of most of its banking arm to Barclays in a deal worth up to £1bn.
The UK’s largest retailer, which had been in discussions with other major lenders including HSBC and Lloyds over a deal, said all 2,800 staff at Tesco Bank would transfer to Barclays under the agreement over time.
The sale only includes its banking operations in credit cards, loans and savings.
Tesco Bank’s wider financial services interests, including insurance, gift cards and cash machines, will remain with Tesco.
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The company told the bank’s five million customers they did not need to take any action and that they would be contacted in due course.
The banking giant expects to pay roughly £600m for Tesco Bank’s credit cards, unsecured personal loans, deposits and operating systems.
Up to £400m more was expected following the conclusion of several other processes, Tesco said, adding that the total sum would be returned to shareholders in the form of a share buyback under its proposals.
The deal removes £7.7bn of capital-intensive assets and £6.7bn of financial liabilities from the supermarket’s balance sheet and allows Tesco to focus on its sprawling retail empire.
Tesco said the sale, which is subject to regulatory clearances, marked the start of a strategic partnership with Barclays that would last for an initial 10 years.
AJ Bell investment director, Russ Mould, described the arrangement as a “win-win” for both parties.
“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 wrote in a note.
The UK’s largest retailer said in its statement: “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 programme.”
Ken Murphy, Tesco’s chief executive, said of the deal: “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.”
Sky News revealed a year ago how Tesco had reinitiated a process that could have led to the banking arm’s sale.
It had previously offloaded its existing mortgage book to Lloyds for £3.8bn in 2019.
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Tesco Bank sold to Barclays in deal worth up to £1bn
Coimbatore Sundararajan Venkatakrishnan, the Barclays chief executive, added: “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.”
As the markets opened on Friday, Tesco shares were 2% up, while those of Barclays were 0.5% higher after the deal was announced.
