Tesco Sells Banking Operations to Barclays for £700m

This is an interesting move from Tesco as it steps back from day-to-day running of bank services. The commission based sales model makes more sense for the supermarket brand, as it enhances the data from its Clubcard operations by offering two-tier pricing in stores – and online. More shoppers will be forced to not only take out the Card but use it, thus enabling tracking of goods purchased, frequency, locations etc. This is all useful data for any financial services partner.

The selling price of £700 million also gives Tesco some firepower when it comes to acquisitions, rolling out smaller, more profitable convenience stores, or perhaps investing further in its land bank or social housing projects. 

Here’s the word from Tesco;

Tesco is delighted to announce a long-term strategic partnership with Barclays, one of the UK’s leading banks.  Initially for a 10-year period, the exclusive partnership will combine Tesco’s market-leading brand, physical & digital reach and relentless customer focus with Barclays’ deep financial services capabilities and expertise in commercial partnerships.

The partnership will allow us to offer customers Tesco-branded banking products and services, benefiting from the power of Tesco Clubcard, the UK’s largest loyalty programme, in addition to exploring other opportunities to offer value to Tesco and Barclays customers.  Under the terms of the agreement, we will receive annual income for the use of the Tesco brand, for growing the customer base through Tesco channels and as a result of Barclays’ participation in the Tesco Clubcard programme.

Our existing banking operations in credit cards, loans and savings will be sold to Barclays, removing £7.7bn of capital-intensive assets and £6.7bn of financial liabilities from the Tesco balance sheet . In return, we expect to receive c.£600m of proceeds, in addition to c.£100m further net cash after the settlement of certain regulatory capital amounts and after transaction costs.   Combined with the previously announced special dividend of £250m paid by Tesco Bank in August 2023, this is expected to result in total cash received by Tesco of around £1bn.  The majority of this cash will be returned to shareholders in the form of an incremental share buyback.

We will retain all other existing activities of Tesco Bank, including insurance, ATMs, travel money and gift cards.  These are capital-light, profitable businesses with a strong connection to our core retail offer.

Combined, the pro forma annual adjusted operating profit from the partnership and retained activities is anticipated to be in the range of c.£80m to c.£100m – more than half of the current year expected profits from Tesco Bank.

Around 2,800 Tesco Bank colleagues working on banking products, including the senior management team, will transfer to Barclays and will continue to offer customers the same outstanding service.  Barclays will work closely with Tesco to support the team through this transition.