Barclays has agreed to buy Tesco Bank’s retail banking operations for £600 million, as the UK’s biggest supermarket sharpens its focus on its food business.
The banking giant will scoop up its credits cards, loans, savings and banking operations as part of the deal.
About 2,800 staff at Tesco Bank will also transfer to Barclays over time.
The announcement follows rival supermarket giant Sainsbury’s announcing plans last month to wind down its banking division amid efforts to focus on the food business.
Barclays said it expects to pay roughly £600 million for the retail banking operations.
But Tesco said it could receive up to £1 billion once other costs are settled in the transaction, and taking into account a £250 million special dividend paid by the banking subsidiary to its parent company last year.
Some remaining elements of the supermarket bank – including its insurance products, travel money, gift cards and ATMs – are not included in the deal. It described them as “capital-light, profitable businesses with a strong connection to our core retail offer”.
Barclays will take on Tesco Bank’s credit cards and unsecured personal loans, worth about £8.3 billion, and approximately £6.7 billion in customer deposits, provided the acquisition is completed by the end of July next year.
Furthermore, the two companies have agreed to a partnership, initially for a 10-year period, which means Barclays can market and distribute credit cards, loans and savings under the Tesco brand.
It will also give the bank the opportunity to tap into the Tesco Clubcard scheme, which is the UK’s largest loyalty programme.
CS Venkatakrishnan, Barclays’ boss, said the partnership is a “further demonstration of the investment we continue to make in our UK consumer business”.
“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,” he said.
The banking giant said it is using its existing resources to pay for the acquisition. As part of plans to simplify the bank, it is currently in the process of trying to sell its German consumer business.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “Tesco is streamlining the balance sheet, having parted ways with its credit cards, loans and savings operations.
“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.”