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Tesco has announced it will sell it’s the majority of its banking operations to Barclays, with the deal worth £1bn in total.

The supermarket has this morning announced a “long-term strategic partnership “with Barclays.

Under the terms of this partnership its 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, Tesco expects to receive £600m of proceeds, in addition to another £100m in 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.

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

As part of the partnership, Tesco will offer branded banking products and services, benefiting from the power of Tesco Clubcard, in addition to exploring other opportunities to offer value to Tesco and Barclays customers.

Under the terms of the agreement, Barclays will pay Tesco an 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.

Combined, the pro forma annual adjusted operating profit from the partnership and retained activities is anticipated to be in the range of £80m to £100m – which is 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.

Completion of the disposal and entry into the strategic partnership is conditional on court sanction and regulatory approval or non-objection, with completion expected to occur during the second half of calendar year 2024.

Tesco CEO Ken Murphy commented: “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.

“By working with one of the UK’s leading banks, we can bring customers new and innovative propositions, which will continue to benefit from Tesco Clubcard’s unique insight and digital capabilities.

“The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business. I’m hugely grateful to our colleagues for their dedication and excellent service to our customers, and I’m confident that this new partnership approach will build on that success.”

C.S. Venkatakrishnan, Barclays group CEO, added: “Barclays is a leading consumer bank in the UK. This strategic relationship with the UK’s largest retailer will help create new distribution 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.

“This partnership with Tesco 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.”

Morning update

Tesco shares are up 0.9% on this morning’s news.

Elsewhere this morning the FTSE 100 is fractionally up to 7,599.7pts.

Risers include Naked Wines, up 6.3% to 71.2p, Glanbia, up 2.5% to €16.30 and Greencore, up 2% to 101.7p.

Fallers so far include Nichols, down 3.9% to 975.1p, Virgin Wines, down 3.4% to 36.2p and British American Tobacco, down 2.1% to 2,431 following yesterday’s gains.

Yesterday in the City

The FTSE 100 closed down yesterday 0.4% at 7,595.5pts.

However, there were some notable grocery risers.

Packaging group DS Smith jumped 9.8% to 308.6p on news of a preliminary takeover approach from rival Mondi.

British American Tobacco was up 7.1% to 2,484p despite revealing an annual loss on writedowns as it announced it was trying to sell some of stake in India’s ITC.

Other risers included Unilever, up 3.2% to 4,025p on its annual results, Kerry Group, up 3.8% to €81.50, Compass Group, up 2.8% to 2,211p, Nichols, up 2.3% to 1,015p and McBride, up 1.9% to 74.8p.

Fallers included PZ Cussons, down a further 6% to 100.6p following falls on Tuesday, Coca-Cola HBC, down 2.8% to 2,177p, Haleon, down 1.9% to 323p, AG Barr, down 1.8% to 542p and Britvic, down 1.8% to 877.5p.