Tesco has struck a deal to sell the bulk of its banking business to Barclays for £700m in a deal that will include the transfer of about 2,800 staff to the bank.
Britain’s biggest supermarket group has agreed to sell its credit card, loans and savings operations to Barclays but will retain profitable elements of Tesco Bank, including its insurance, ATM, travel money and gift card operations. Tesco will receive £600m in proceeds from Barclays followed by a further £100m in net cash once regulatory and other costs associated with the transaction are settled.
Under the terms of a wider 10-year exclusive agreement, Barclays will sell Tesco-branded banking products and services, as well as utilising the Tesco Clubcard scheme. In return, Tesco will receive £50m in annual income from royalty, new account and Clubcard participation fees.
Ken Murphy, Tesco’s chief executive, 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.
“The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business.”
Tesco said that the deal to sell the banking assets would remove £7.7bn of “capital-intensive assets” and £6.7bn of financial liabilities from its balance sheet.
The retailer said that the operating profit from its retained banking services, and the wider partnership with Barclays, was anticipated to be about £80m to £100m annually.
About 2,800 Tesco Bank staff, including the senior management team, will transfer to Barclays as part of the deal.
“This partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business,” said CS Venkatakrishnan, the chief executive of Barclays. “We are looking forward to working closely with the team at Tesco over the coming months to enable a smooth transition and, subject to completion of the transaction, we look forward to welcoming Tesco Bank colleagues and customers to Barclays.”
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Last month, Sainsbury’s Bank opened the door to fresh takeover offers, after the supermarket group said it would exit the banking business almost 27 years after its launch.
The retailer is exploring a number of options for its bank – which offers savings accounts, credit cards, travel money and insurance – after a strategic review suggested it could be a distraction from a years-long overhaul, meant to bring the supermarket’s focus back to its core food and retail operations.
