Sainsbury’s is handing most of its banking business to NatWest as supermarkets flee financial services.
The supermarket giant will pay the lender £125m to take off £1.1bn in credit card balances, £1.4bn in unsecured personal loans and £2.6bn in customer deposits in savings accounts.
The deal comes as supermarkets reverse their push into financial services to focus on their core food businesses.
And the trend of consolidation among lenders continues following Nationwide’s acquisition of Virgin Money and Coventry Building Society’s partnership with Co-op Bank.
The deal is NatWest chief executive Paul Thwaite’s first acquisition since taking over earlier this year.
First acquisition: Paul Thwaite (pictured) was appointed chief executive of NatWest in February to replace Dame Alison Rose
He was appointed in February to replace Dame Alison Rose, who had to resign last summer after a row over the unbanking of UK reformist leader and Brexit supporter Nigel Farage.
Thwaite previously said he was open to acquisitions that would expand the business, and that the deal with Sainsbury’s would boost NatWest’s credit card business.
It comes after the Government’s plan for a Tell Sid-style sale of part of its remaining stake in NatWest was put on hold due to the general election.
The Treasury bailed out the bank in the 2008 financial crisis and at one point was the lender’s largest shareholder with a stake of more than 80 percent. The deal with Sainsbury’s will add around 1 million customer accounts to NatWest’s books.
Thwaite said: “In addition to a complementary customer base, the transaction is expected to add scale to our unsecured credit card and personal loan business within existing risk appetite.”
Sainsbury’s announced plans to close its banking unit in January this year to focus on food.
This follows Barclays’ agreement to buy the majority of Tesco Bank’s assets in a £600m deal earlier this year. Meanwhile, M&S Bank closed all its branches and abolished current accounts three years ago.
Sainsbury’s said it will return around £250 million in excess capital to shareholders following the deal, which is expected to complete next year.
Deal: Sainsbury’s will pay NatWest £125m to take off its hands £1.1bn of credit card balances, £1.4bn of unsecured personal loans and £2.6bn of customer deposits in savings accounts.
The supermarket said it will maintain its ATM, insurance and travel money businesses, as well as Argos Financial Services. Sainsbury’s boss Simon Roberts said: “There will be no immediate changes for our banking customers as a result of this announcement.”
“The news means we will focus all our future time and resources on growing our core retail business, delivering great quality and value, week after week.”
Russ Mould, chief investment officer at brokerage AJ Bell, said “removing any distractions in other parts of the business could help grease the wheels.”
“Supermarkets have over the years experimented with ways to expand beyond their core focus, offering products that grocery customers might also want,” he said.
“Some initiatives worked, others didn’t, but we are now in a time where companies prefer to focus on what they do best and distance themselves from the rest.”
Will Howlett, financial analyst at wealth manager Quilter Cheviot, said: “This move is indicative of the current trend of consolidation within the banking sector, which we have been anticipating.”
“While the scale may be small relative to NatWest’s existing operations, the long-term potential for cross-selling and deepening customer relationships could be significant.”
Shares in Sainsbury’s rose 2.1 per cent, while NatWest gained 2.6 per cent.