Tesco has sold its banking arm to Barclays in a £700 million deal that signals a wider retreat from financial services by the big UK grocers.
Three weeks ago Sainsbury said it is open to offers for its own banking business as its shifts to a “Food First” strategy under CEO Simon Roberts.
HSBC and Santander have been mooted as possible bidders.
Tesco will get £600 million from Barclays and another £100 million in time, freed up in balance sheet gains.
Barclays gets £8.3 billion of loans – half credit cards and half personal loans -- and £6.7 billion of deposits.
Under a ten-year deal, Barclays will sell Tesco-branded bank products and make use of the Tesco Clubcard scheme. Tesco will get £50 million in fees each year from Barclays for this.
Barclays will take on 2800 Tesco Bank staff.
Tesco first moved into banking in July 1997, a move aped by other grocers. It was then a 50:50 joint venture with Royal Bank of Scotland.
Supermarkets thought their close relationship with their customers would enable them to sell insurance and other banking products to their millions of customers.
Customers proved mostly reluctant to buy banking products alongside their groceries.
Retail analyst Nick Bubb said: “Well, it’s not been easy for the big supermarkets and other retailers to break into the financial services market, given the capital requirements and customer inertia and Tesco has admitted defeat.”
Gary Greenwood at Shore Capital said some investors might be asking if it would be better for Barclays to have used the cash to buy back its own shares given their lowly value.
Shore Capital thinks a fair value for Barclays stock is 290p. Today the stock slipped slightly to 143p, which leaves the bank valued at £22 billion.
Barclays reports full year results on February 20th, when investors are also expecting an update on strategy.
Hargreaves Lansdown analyst Sophie Lund-Yate saids. “Doubling down on the core food business is a trend we’re seeing many of the grocers adopt, as they reduce exposure to non-core activities and get ready to win the price wars, which have been raging since cost of living pressures soared.”
CS Venkatakrishnan, group chief executive of Barclays, said: “Thisstrategic relationship with the UK’s largest retailer will help create newdistribution 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.”
Ken Murphy, group chief executive of Tesco, 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.”
