Barclays Buying Tesco Bank; Positive For TSCO

Barclays (BARC LN) is buying Tesco (TSCO LN) retail banking business - small deal for Barclays (c.1.5% of CET1) but a good de-risking transaction for Tesco and the TPF bail-in debt will be redeemed in Jul-24.

• Barclays is buying GBP8.3bn of personal lending (around 50-50 cards-to-personal loans), GBP6.7bn of deposits and is paying GBP600m for GBP960m of tangible net assets (0.63x book… BARC itself trades on <0.5x). The hit to CET1 is seen at 30bp (was 14.0% at Sep-23) but the bank is also trying to sell its German consumer finance business, so some offset there in time. The net effect is likely credit neutral.
• For Tesco, aside from the 10yr deal to continue the customer-facing business now to be run by Barclays, this is set to bring in GBP600-700m of total proceeds (and Tesco Bank already upstreaming GBP250m to the parent in Aug-23) which are to be used for a share buyback. Further, Tesco sees the partnership as generating around 50% of the pre-deal profit level anyway – therefore this is a minor credit positive.
• Further, Tesco Personal Finance intends to redeem all the 3.5 25s (TSCOPF 3 1/2 07/25/25) at par on 25-Jul-24. These have tightened meaningfully on the way into this transaction anyway.