Barclays (BCS) to Acquire Tesco’s Retail Banking Business

Barclays BCS made a significant move in the U.K. retail banking space by announcing a deal to acquire Tesco’s retail banking business for £600 million. This partnership with Tesco, the U.K’s largest retailer, not only marks a key opportunity for BCS to further its retail banking ambitions but also signifies a new chapter in expanding its customer base and distribution channels.

The acquisition includes Tesco-branded credit cards, unsecured personal loans and deposits, totaling approximately £8.3 billion in unsecured lending balances. This move is expected to complement Barclays UK’s existing business and strengthen its position in the market by tapping into Tesco’s extensive distribution channels and customer loyalty scheme.

Barclays UK plans to integrate the acquired business, which includes around 2,800 employees and operational infrastructure, into its existing operations. The transaction is set to enhance its unsecured lending business and is projected to offer attractive financial returns over the term of the agreements.

In addition, Barclays UK will enter into a long-term, exclusive strategic partnership with Tesco Stores Limited for an initial period of 10 years. This partnership will enable Barclays to market and distribute credit cards, unsecured personal loans and deposits using the Tesco brand, leveraging the retailer’s strong customer base and digital capabilities.

C.S. Venkatakrishnan, CEO of Barclays, highlighted the opportunity to leverage Barclays’ expertise in partnership cards to enhance the Tesco Clubcard loyalty scheme. He further added, “Similar to our acquisition of Kensington Mortgages last year, this partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business.”

Barclays’ acquisition of Tesco’s retail banking business and the long-term partnership with the company present a promising opportunity for growth and expansion in the U.K. retail banking sector. The transaction, expected to be completed by July, will be financed from BCS’ existing resources and is anticipated to lower its CET1 ratio by almost 0.3% upon completion.

If the transaction gets completed as expected, Barclays UK will get £4.2 billion in gross credit card receivables, £4.1 billion in gross unsecured personal loans and £6.7 billion in customer deposits. Also, the tangible net assets acquired, totaling roughly £960 million, indicate the value being transferred in the transaction. This includes an expected credit loss allowance of approximately £490 million.

By leveraging Tesco’s established brand and customer base, Barclays is well-poised to unlock new opportunities for growth and innovation in the financial services sector.

Over the past six months, shares of Barclays have gained 9.1%, outperforming the industry’s rally of 8.2%.

                                                                                        Zacks Investment Research

Currently, BCS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Acquisitions Done by Other Banks

In January, Webster Financial Corporation WBS completed the acquisition of Ametros Financial Corp to broaden its financial services portfolio. Ametros, one of the country’s largest professional administrators of medical insurance claim settlements, will maintain its operations under the Ametros and CareGuard brands.

This acquisition positions WBS to tap into Ametros’ rapidly growing source of low-cost, long-duration deposits. The addition of Ametros to Webster’s offerings not only enhances its deposit diversity but also introduces a new stream of non-interest income. With plans for a full integration during the first quarter of 2024, this move reinforces the company’s commitment to strategic expansions.
WaFd, Inc. WAFD is on track to merge with Luther Burbank Corporation LBC after some delay in getting the final approvals. The merger, slated to be completed by Feb 29, has received the green light from regulatory authorities.

The deal, announced on Nov 13, 2022, garnered regulatory approvals from the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions and the Board of Governors of the Federal Reserve System. Upon closure, this move will extend WaFd’s reach to nine western states, incorporating 10 California branches from Luther Burbank.

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