- Tesco Bank sells retailing banking business to Barclays for £600 million
- Tesco will use majority of £1 billion for share buyback
- Barclays acquires credit cards, loans, deposits, and operating infrastructure
- Exclusive strategic partnership between Barclays and Tesco
- Shares of Tesco and Barclays have seen a decline this year
Tesco, the U.K.’s leading supermarket chain, has announced the sale of its retailing banking business to Barclays for an initial amount of £600 million, with an additional £100 million to be paid after certain regulatory capital amounts are settled. This move is part of Tesco’s strategy to focus on its core retail operations and strengthen its financial position. The sale will allow Tesco to use a combined £1 billion, including a special dividend from Tesco Bank, for a share buyback.
Tesco Bank’s Sale to Barclays
Under the agreement, Tesco will retain its insurance, ATMs, travel money, and gift cards, which account for an estimated operating profit of £80 million to £100 million. The retailing banking business being sold includes credit cards, unsecured personal loans, deposits, and the operating infrastructure. Barclays will also acquire £8.3 billion of unsecured lending balances with credit quality consistent with its existing U.K. portfolios. The business being acquired had an adjusted operating profit of approximately £85 million in the 12 months leading up to February 2023.
Strategic Partnership and Financial Performance
As part of the deal, Barclays will enter into an exclusive strategic partnership with Tesco for an initial period of 10 years. This partnership will involve marketing and distributing credit cards, unsecured personal loans, and deposits using the Tesco brand. Barclays will pay £50 million per year for this arrangement. The sale of the retailing banking business is expected to be mildly accretive to Barclays’ earnings per share.
Both Tesco and Barclays have experienced a decline in their share prices this year. Tesco shares have dropped 3%, while Barclays shares have declined by 7%. The sale of Tesco Bank’s retailing banking business to Barclays represents a strategic move for both companies to optimize their operations and strengthen their positions in the market.
The sale of Tesco Bank’s retailing banking business to Barclays for £600 million is a significant development in the U.K. banking and retail sectors. Tesco’s decision to focus on its core retail operations and utilize the proceeds for a share buyback demonstrates its commitment to enhancing shareholder value. The strategic partnership between Barclays and Tesco will further strengthen their market presence and provide customers with a seamless banking experience. As the deal unfolds, it will be interesting to see how both companies leverage their respective strengths to drive growth and innovation in the financial services industry.