It also adds 2,800 employees
Barclays has finalised its acquisition of Tesco Bank’s retail banking operations. The £600 million deal, first announced in February 2024, positions Barclays to expand its footprint in consumer banking through an exclusive partnership with Tesco, the nation’s largest supermarket chain.
The transaction transfers Tesco Bank's credit card, unsecured personal loan, and deposit accounts - worth a combined £8.3 billion in lending balances - to Barclays UK, along with around 2,800 Tesco Bank employees. The move follows Tesco’s decision to withdraw from banking, mirroring a broader trend as high-street retailers recalibrate their focus on core retail operations amid lacklustre performance in the banking sector.
In his comments, Barclays group chief executive C.S. Venkatakrishnan emphasised the strategic advantages of the acquisition. "This acquisition is an important step in increasing our investment in the UK. We look forward to collaborating with Tesco Group on delivering Tesco-branded financial services," he said. He noted that Barclays is committed to building value for both Tesco’s customer base and the broader UK market.
The deal also establishes a 10-year exclusive partnership between Barclays UK and Tesco to offer financial products under the Tesco brand. This long-term agreement aims to leverage Tesco’s strong brand loyalty, particularly through the popular Clubcard program, which has become central to the retailer’s customer engagement strategy.
Ken Murphy, CEO of Tesco, expressed enthusiasm for the partnership, saying it would "unlock even greater value for Tesco Bank customers." He acknowledged the hard work of Tesco Bank employees, who, over 25 years, had contributed to the bank's success in supporting millions of customers. Murphy underscored Tesco's continued commitment to bringing innovative financial products to its customers through the new Barclays partnership.
This acquisition marks Barclays' latest move in expanding its consumer banking presence in the UK, following its £2.2 billion purchase of Kensington Mortgages last year. With this expansion, Barclays aims to reduce its reliance on investment banking, where profitability is often volatile, and instead strengthen its consumer-focused divisions that deliver higher returns with lower capital requirements. Industry analysts view Barclays’ strategic shift as a prudent approach to stabilising returns amid a challenging economic environment.
The transaction also highlights a trend among major UK retailers to offload financial divisions. Tesco’s decision comes on the heels of Sainsbury’s plan to scale back its financial services arm, opting to distribute products through third parties rather than maintain an in-house bank. Both retailers initially entered financial services in the 1990s but have found it challenging to secure substantial market share in the face of traditional banks.
The acquisition of Tesco Bank follows Lloyds Banking Group's purchase of Tesco’s UK residential mortgage portfolio in 2020 for £3.7 billion. Lloyds, through its Halifax brand, inherited 23,000 mortgage accounts from Tesco, part of a targeted acquisition strategy focused on high-value opportunities in the UK market.
For Barclays, the Tesco Bank acquisition has significant financial implications. The acquired business includes assets valued at £1 billion, encompassing £4.2 billion in credit card receivables and £6.8 billion in customer deposits. Barclays expects to generate an estimated pre-tax profit of £300 million from the acquisition, translating into a boost of approximately 50 basis points to the bank’s Group Return on Tangible Equity (RoTE) for 2024. However, the transaction will also reduce the bank’s Common Equity Tier 1 (CET1) ratio by around 20 basis points due to the addition of approximately £7 billion in risk-weighted assets.
In a Press release, Barclays UK CEO Vim Maru highlighted the potential benefits of integrating the two businesses. "Today marks a significant step as we continue to grow Barclays UK. We will bring the strength of both businesses together, benefitting customers and colleagues," he said, pointing to the combined brand power and the synergies with Tesco's Clubcard scheme as a unique value proposition.
The transfer of Tesco Bank operations to Barclays UK will unfold gradually, with the bank committed to a smooth transition for both customers and employees. Tesco will retain some parts of its former banking operations, including insurance, gift cards, and travel money services, which are expected to be rebranded over the next two years.
