Barclays will buy most of the banking operations of Britain's biggest supermarket group Tesco for about £600m, the companies said today.
The deal follows last month's move by Sainsbury's, the UK's second biggest supermarket, to wind down its banking business and instead offer financial products through third parties.
It also comes ahead of a crucial strategy update from Barclays alongside its full-year results on February 20, amid investor unease about its stock's underperformance relative to rivals.
Barclays will take on Tesco's existing banking operations in credit cards, loans and savings, adding £8.3 billion of unsecured loans and around £6.7 billion of deposits.
Tesco will retain all other existing activities of Tesco Bank, including insurance, ATMs, travel money and gift cards.
About 2,800 Tesco workers will transfer to Barclays under the terms of the deal.
Barclays and Tesco have also formed a strategic partnership, initially for 10 years, that will see Barclays offer Tesco-branded banking products and services, using Tesco's popular Clubcard loyalty scheme.
Tesco will receive fees of £350m pounds a year.
The acquisition and partnership, which are subject to regulatory approval, are expected to be completed in the second half of 2024.
"This strategic relationship with the UK's largest retailer will help create new distribution channels for our unsecured lending and deposit businesses," Barclays CEO CS Venkatakrishnan said.
Reuters reported in November that Barclays was exploring a potential acquisition of Tesco's banking operations.
Tesco said the majority of the proceeds and a previously announced special dividend of £250m paid by Tesco Bank in August 2023 would be returned to shareholders through an additional share buyback.
The grocer said the deal would boost its balance sheet by offloading capital-intensive assets while retaining capital-light ones. Tesco also stands to gain around £100m after the settlement of its regulatory capital, the firm said.
It said it expected to make annual adjusted operating profit from the partnership and retained activities of £80-100m - more than half of the current year's expected profits from Tesco Bank.
It added the deal would be "mildly accretive" to earnings per share.
Ken Murphy, Tesco chief executive, said that Tesco Bank is a strong business that has helped millions of 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," he added.
Tesco first entered banking in 1997 but has been stepping back from the area for a number of years. In 2018 it sold its Irish credit card business to Avantcard.
