(qlmbusinessnews.com Fri. 21st June, 2024) London, UK —
NatWest Expands with Sainsbury's Bank Acquisition Amid Sector Shake-Up
NatWest is set to acquire the majority of Sainsbury's Bank‘s operations, in a deal that will bring an additional one million customer accounts to the bank, marking a significant consolidation in the sector.
The acquisition will see NatWest take over a large portion of Sainsbury's Bank's assets, including outstanding credit card balances, unsecured personal loans, and savings accounts.
Sainsbury's Bank has been on the market since January when the supermarket chain announced its decision to exit the banking sector after 27 years. NatWest will acquire £2.5 billion in customer assets, which include £1.4 billion in unsecured personal loans and £1.1 billion in credit card balances, along with £2.6 billion in liabilities, primarily customer deposits.
In a unique aspect of the deal, Sainsbury's is set to pay NatWest £125 million to take over the banking business, with the final amount to be determined upon completion in early 2025. This arrangement underscores Sainsbury's urgency to divest its non-core businesses and focus on its primary grocery operations, as NatWest will be assuming more liabilities than assets.
This transaction highlights a broader issue where UK banks have often been valued below the assets on their balance sheets. Some Tory ministers attribute this to lingering Brexit concerns and the perception of a hostile political environment for banks in the UK. These concerns were exacerbated when the Conservative government pressured NatWest's former CEO, Alison Rose, to resign last year after a dispute with Nigel Farage, leader of Reform UK.
Despite this, investors have largely welcomed the terms of the Sainsbury's Bank deal. Shares in Sainsbury's rose by up to 2.5% following the announcement on Thursday, while NatWest's shares increased by 1.7%.
Russ Mould, Investment Director at AJ Bell, commented: “It's no surprise the market has given the thumbs up to Sainsbury's disposal. The supermarket has been thriving with its strategy of focusing on food, and removing distractions could further streamline operations.”
Clive Black, Head of Consumer Research at Shore Capital, praised the move, calling it “another good decision” by Sainsbury's CEO, Simon Roberts. He added, “We welcome the announcement that Sainsbury's has disposed of its core banking business faster than anticipated, ending an ambitious venture to become a challenger bank.”
The decision to sell followed a strategic review that concluded the banking operations could detract from Sainsbury's focus on its core grocery and retail businesses. The bank had previously considered selling during the Covid-19 pandemic, with NatWest identified as a potential buyer.
Paul Thwaite, the new CEO of NatWest, has expressed a willingness to consider acquisitions that expand the business. This latest deal will enhance NatWest's credit card business, an area identified for growth.
The NatWest deal does not include certain Sainsbury's Bank assets, such as the commission income business, ATMs, insurance, travel money, or Argos Financial Services. The acquisition is subject to regulatory approvals.
Thwaite stated, “This transaction is a great opportunity to accelerate the growth of our retail banking business at attractive returns, aligning with our strategic priorities.”
This deal is part of a wave of consolidation among smaller lenders, bolstered by higher interest rates increasing bank profitability. Larger banks have been acquiring smaller rivals, with Coventry Building Society recently announcing a £780 million acquisition of Co-operative Bank, and Nationwide launching a £2.9 billion takeover of Virgin Money. Additionally, Barclays agreed to buy most of Tesco Bank for £700 million in February, retaining some assets including insurance and travel money operations.
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