Tesco Bank, the banking arm of the UK’s largest supermarket chain, has agreed to sell most of its operations to Barclays for £700m, as part of its strategy to focus on its core retail business. The deal, which is expected to complete in the second half of 2024, will see Barclays acquire Tesco Bank’s credit card, loan and savings accounts, and enter into a long-term partnership with Tesco to offer Tesco-branded banking products and services.
The deal is part of Tesco’s plan to simplify its business and improve its profitability, as it faces increasing competition and challenges in the retail sector. Tesco Bank, which was launched in 1997 as a joint venture with Royal Bank of Scotland, has been struggling to grow its market share and revenue in the banking sector, which is dominated by larger and more established players.
Tesco Bank’s banking operations, which have about 2.5 million customers and £7.7bn of assets, are also capital-intensive and subject to strict regulatory requirements, which limit Tesco’s ability to invest in its core retail business. Tesco Bank’s banking operations made an operating profit of £115m in the year to February 2023, down from £193m in the previous year.
By selling most of its banking operations to Barclays, Tesco will receive £700m in cash, which will help it reduce its debt and strengthen its balance sheet. Tesco will also retain some of its banking operations, such as insurance, ATM, travel money and gift card services, which are more profitable and less capital-intensive. Tesco will also receive £50m per year in fees from Barclays, as part of the 10-year partnership agreement, which will allow Tesco to offer its customers Tesco-branded banking products and services, and to utilise its loyalty scheme, Tesco Clubcard.
The impact and the outlook of the deal
The deal will have a significant impact on the banking sector and the customers, as it will create a new and stronger player in the market. Barclays, which is one of the UK’s largest and oldest banks, will acquire about 2.5 million new customers and £7.7bn of assets from Tesco Bank, which will boost its market share and revenue in the banking sector. Barclays will also benefit from the partnership with Tesco, which will give it access to Tesco’s large and loyal customer base, and to its data and analytics capabilities.
The deal will also affect the staff and the operations of Tesco Bank, as about 2,800 of its employees, including the senior management team, will transfer to Barclays. Barclays said that it will integrate Tesco Bank’s banking operations into its own over time, and that it will offer Tesco Bank’s customers the same or better terms and conditions on their products and services. Barclays also said that it will honour Tesco Bank’s existing commitments and obligations to its customers, regulators and stakeholders.
The outlook for the deal is positive, as both Tesco and Barclays expect to complete the transaction in the second half of 2024, subject to regulatory approvals and other customary conditions. The deal is expected to create value for both parties, as well as for their customers and shareholders. Tesco said that the deal will allow it to focus on its core retail business, and to offer its customers a better and more convenient banking experience. Barclays said that the deal will enhance its position and performance in the banking sector, and to offer its customers a wider and more innovative range of banking products and services.