Tesco Bank to be bought by Barclays in £600m deal
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Barclays is acquiring Tesco's retail banking business for a sum of £600 million, which is a significant amount for the grocery retailer.
Barclays has taken control of Tesco Bank's credit card, loan, and savings account services. Additionally, they have formed a partnership where they will promote banking services under the Tesco brand.
In the agreement, approximately 2,800 employees who work for Tesco's banking division will move over to Barclays.
Tesco has confirmed that it will be getting in touch with its customers in the upcoming months. There is no need for customers to take any immediate action on their end.
The grocery store still offers a few of the services previously provided by Tesco Bank, such as insurance options, ATMs, foreign currency exchange, and gift vouchers.
Barclays and Tesco have made a partnership where Barclays will promote and provide credit cards, unsecured personal loans, and deposits using the name of Tesco. This agreement will last for a period of 10 years initially.
Tesco's stock increased by more than 2% in the beginning of the trading day but later fell down, whereas Barclays experienced a slight increase in their shares.
Ken Murphy, the CEO of the supermarket, stated that the agreement would fortify Tesco's financial standing and give it the ability to expand its primary retail enterprise. However, the company emphasized that most of the earnings from the agreement would be distributed among its shareholders.
This will also encompass a unique payment of £250m that was given by Tesco Bank to the supermarket company in August of the previous year.
Furthermore, the agreement will enable Tesco to free up £100m that is currently held up due to regulatory requirements. This sum will be included in the funds allotted for distribution to shareholders.
Barclays has stated that it plans to gradually merge the acquired business with its own, while Tesco has expressed that the bank will collaborate closely with the supermarket to provide assistance to the employees who will be transferred.
The head honcho of Barclays Group, C.S. Venkatakrishnan, expressed that teaming up with the biggest retail chain in the United Kingdom is a smart move as it will open up opportunities to expand their loan and deposit services through different channels.
Our vast experience in creating partnership cards in the United States allows us to improve the already flourishing Tesco Clubcard rewards program.
According to Tesco, the agreement would transfer a portion of the company that requires a significant amount of funding, while still maintaining hold over other properties that require less investment.
According to Sophie Lund-Yates, who is the main person responsible for analyzing stocks at Hargreaves Lansdown company, Tesco has been simplifying its possessions by getting rid of its credit card, loan, and savings divisions.
Many grocers are focusing more on their main food business and stepping away from non-core activities in order to compete in the ongoing price wars. This has become a popular trend as living costs continue to rise."
Ten years ago, people thought that supermarkets had a good chance of challenging the power of the traditional banks on the High Street.
As technology progressed, their physical branch network that was already established within their stores became less important.
On the other hand, Starling and Monzo, which are based on mobile applications, rapidly emerged as the real competitors.
The stricter government rules have reduced the attractiveness of financial services for those in the grocery industry as well.
A while back, Tesco Bank provided current accounts. Nevertheless, they ceased that service because only a meager number of clients utilized them as their main account. Presently, akin to Sainsbury's, the bank is entirely discontinuing its banking operations.
In the previous month, Sainsbury's revealed its intention to gradually withdraw from its banking section so that it could concentrate on its primary food venture.
