3rd Sep 2019 07:31
(Alliance News) - Lloyds Banking Group PLC said Tuesday it has acquired grocer Tesco PLC's GBP3.7 billion UK residential mortgage portfolio.
The deal will see 23,000 mortgage customers transfer to Halifax - a division of the Bank of Scotland PLC, in turn a wholly owned subsidiary of Lloyds - from Tesco Personal Finance PLC, which falls under Tesco Bank.
Lloyds and Tesco expect the transfer of customers to begin at the end of September with the legal title change happening in March next year.
The purchase price, of about GBP3.8 billion, represents a 2.5% premium to gross book value. Lloyds will fund the acquisition from existing internal resources, noting the deal will have "minimal" impact on capital.
Lloyds said it was able to pull the deal off due to its "strong" free capital build, giving the lender "flexibility to consider inorganic growth".
In a statement, Lloyds said: "The acquired portfolio will generate good returns to the group in excess of current organic market opportunities, while delivering open mortgage book growth within the group's low risk strategy and providing additional flexibility in participation choices in the mortgage market."
Lloyds now expects to end 2019 with a year-on-year increase in its open mortgage book.
Tesco noted the portfolio generated pretax profit of GBP9.1 million in the financial year ended February 28, with customer income of about GBP81 million.
The supermarket chain said the sale fits with its own strategy of reducing the number of financial products and services it offers, in an attempt to lower operating costs.
"The sale proceeds will be used for re-investment into our customer offer, ongoing transformation of the business and re-balancing of retail and wholesale funding sources given the reduction in overall lending," said Tesco.
Tesco Bank Chief Executive Gerry Mallon added: "In May we announced our decision to stop new mortgage lending while we explored our options to sell the mortgage book.
"Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term. As a result, we made the decision to move away from our mortgage offering. Our priority throughout has been to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well."
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