(Bloomberg) -- Barclays Plc said it will acquire much of Tesco Plc’s banking business as the lender seeks to establish a greater foothold in retail banking in the UK.
Barclays expects to pay about £600 million ($758 million), according to a statement on Friday. Tesco separately said it expects to receive around £1 billion in cash from the sale — which includes the release of regulatory capital and an earlier dividend paid by Tesco Bank — and it will use the majority of that for a share buyback.
The move comes just weeks after Barclays Chief Executive Officer C.S. Venkatakrishnan said the firm will likely have to grow in areas like retail banking in order to shrink the investment banking unit’s share of the bank’s overall business as part of his bid to boost the lender’s share price. The company is planning to unveil a series of new financial targets at an investor event later this month.
The transaction includes £4.2 billion of credit-card receivables, £4.1 billion of unsecured personal loans and £6.7 billion in customer deposits. The two companies will also enter into a 10-year deal that allows Barclays to use the Tesco brand to market and distribute credit cards, unsecured personal loans and deposits, according to the statement.
“This strategic relationship with the UK’s largest retailer will help create new distribution channels for our unsecured lending and deposit businesses,” Venkatakrishnan said in the statement.
What Bloomberg Intelligence Says:
Barclays’ planned acquisition of Tesco’s UK retail banking business, £8.3 billion of unsecured loans, is small at 2% of total loans, but is a big statement on the lender’s direction. Along with plans to sell its German consumer finance business and restructuring at its investment bank (which we expect to be detailed at its Feb. 20 investor day), UK retail banking and corporate banking is the new growth focus as Barclays looks to revive its sector-low 0.3-0.4x book valuation.
— Philip Richards and Uzair Kundi, BI banking analysts
Shares of Barclays were little changed in early London trading on Friday and Tesco jumped as much as 2.4%.
Tesco’s rival J Sainsbury Plc has also been looking at disposing of its banking business for quite some time. Last month, it said it’s planning a “phased withdrawal” from the division as part of its wider aim to focus on its core food business. In 2023, British lender Co-operative Bank agreed to buy Sainsbury’s Bank’s £500 million mortgage portfolio.
The 10-year deal with Tesco will require Barclays to pay the retailer £50 million per year in royalty, new account and Clubcard participation fees.
About 2,800 Tesco bank employees, including the unit’s senior managers, will transfer to Barclays. The grocer will still operate ATMs and offer insurance, travel money and gift cards, according to the statement.
Barclays said it will finance the deal with existing resources and doesn’t expect it to materially impact financial returns or shareholder distributions. While the Tesco transaction is expected to reduce Barclays’ common equity tier 1 ratio by 0.3%, a proposed sale of its German consumer-finance business will be accretive, according to the statement.
The transaction, subject to regulatory approvals, is expected to complete in the second half of 2024.
(Updates with analysts’ comments and shares.)
©2024 Bloomberg L.P.