9th Feb 2024 11:55
(Alliance News) - Tesco transferring its banking services to Barclays could be a "win-win", according to AJ Bell, allowing the supermarket to focus on its "bread and butter" retail business.
On Friday morning, Tesco announced that it would be scaling back its financial services foray, selling its retail banking business to Barclays for around GBP600 million. At completion, Tesco will receive around GBP1 billion cash in total, which includes a GBP250 million special dividend.
The pair have also entered into a 10-year strategic partnership, which will see Barclays market Tesco-branded credit cards, unsecured personal loans and deposits to customers through Tesco's existing distribution channels.
AJ Bell's Russ Mould described the deal as a "win-win", and indicative of an era in which companies restrict their focus, while selling off or outsourcing their non-core operations. Last month, rival supermarket chain Sainsburys announced plans to wind down its banking operations.
"The supermarket gets a chunk of cash upfront and an annual income from the partner linked to brand licensing...Barclays gets to sell its products, albeit under the Tesco name, to a bigger pool of individuals", Mould added.
Far from a sign of failure, Mould believes outsourcing the capital-intensive banking arm will allow Tesco to focus on its "bread and butter" retail vertical, without being sidetracked by "jam on the side" ventures such as banking.
Shore Capital also described the deal as an "outstanding outcome" for Tesco shareholders, given the company's promise to return the majority of the GBP1 billion received to shareholders in the form of an incremental share buyback.
Exiting the banking business, in which Shore viewed Tesco as a "small fish in a pond of banking aquatic monsters", puts an end to an undue drain on the company's resources.
Shore noted that Tesco will retain its "capital light" insurance, ATM, gift card and travel money activities, but would not be shocked if the company chooses to dispose of these in the future.
Shore keeps its forecasts for Tesco intact, with a firm "buy" rating.
Shares in Barclays were down 0.2% at 142.86 pence, while Tesco was up 0.7% at 282.30 pence in London on Friday.
By Hugh Cameron, Alliance News reporter
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