TESCO has sold a huge swathe of its retail banking operations to Barclays in a deal worth an initial £600 million that will affect hundreds of Scottish staff in Glasgow and Edinburgh.

The retail giant has retrenched further from the financial services sector after agreeing to sell its Tesco Bank operations in credit cards, loans and savings to the high-street lender. Tesco Bank had previously withdrawn from the current account and mortgages markets, with the bank retaining services in insurance, ATMs, travel money, and gift cards.

Tesco said in a statement to the stock market that around 2,800 Tesco Bank staff, based in offices in Glasgow, Edinburgh, Newcastle, and Reigate, working on banking products will transfer to Barclays, including the senior management team.

A spokeswoman was unable to provide a breakdown on the number of staff employed by Tesco Bank at each of its locations, but said the “absolute majority” are in Glasgow and Edinburgh. She said there would not be any change to current office arrangements at this stage.

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Barclays opened a vast new campus on the banks of the Clyde in Glasgow city centre in October 2021, following an investment in the region of £400 million. It employs around 5,000 people at the site.

Daniel Adams, national officer at Usdaw, said the shop workers' union is seeking "urgent clarification on the implications of the proposed deal for our members".

He said: “At this stage, as far as we understand, although the sale is still subject to regulatory approval any transfer will be covered by the TUPE regulations and, as such, Usdaw will be entering into a period of collective consultation with Barclays in the coming weeks. There have been no indications from the business that this will have any impact on jobs within Tesco Bank.

“Nevertheless, this is still likely to be an incredibly unsettling time for members in Tesco Bank. The union will, therefore, be seeking assurances on jobs, members' terms and conditions as well as intended future plans throughout the consultation period.”

This morning’s announcement sees Tesco Bank remove £7.7 billion of capital-intensive assets and £6.7bn of financial liabilities from the Tesco balance sheet.

Tesco said that in return it expects to receive about £600m of proceeds, as well as £100m of net cash after the settlement of certain regulatory capital amounts and transaction costs. Added to a previously announced special dividend of £250m paid by Tesco Bank in August 2023, it takes the total amount in cash Tesco expects to receive to around £1bn. Tesco said the majority of the cash will be returned to shareholders in the form of an incremental share buyback.

The Barclays deal also involves a 10-year partnership between the bank and Tesco which will see Barclays sell Tesco-branded banking products and services to customers, aided by the power of the supermarket giant’s Clubcard loyalty scheme. Tesco said it will receive an annual income from the use of the Tesco brand, for Barclays growing the customer base through Tesco channels, and as a result of Barclays’ participation in the Tesco Clubcard programme.

Prior to the Barclays deal, Tesco Bank had around 3,500 staff. Those not transferring to Barclays will continue to work for Tesco Bank in insurance, ATMs, travel money, and gift cards, which Tesco described as capital-light, profitable businesses with a strong connection to its core retail offer.

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Sophie Lund-Yates, lead equity analyst at stockbroker Hargreaves Lansdown, said the deal “makes a great deal of sense”. Ms Lund-Yates said: “Doubling down on the core food business is a trend we’re seeing many of the grocers adopt, as they reduce exposure to non-core activities and get ready to win the price wars, which have been raging since cost-of-living pressures soared. The move makes a great deal of sense, and adds weight behind one of Tesco’s main attractions – its ability to return cash to shareholders.”

Ken Murphy, chief executive of Tesco, said: “Tesco Bank is a strong business that has helped millions of loyal customers to manage their money for more than 25 years. As we look to the future, our aim is to be the best provider of financial services in the UK, with this strategic transaction and partnership with Barclays unlocking greater value for customers and for our business. By working with one of the UK's leading banks, we can bring customers new and innovative propositions, which will continue to benefit from Tesco Clubcard's unique insight and digital capabilities.

“The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business. I'm hugely grateful to our colleagues for their dedication and excellent service to our customers, and I'm confident that this new partnership approach will build on that success.”

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Barclays chief executive CS Venkatakrishnan, said: “Barclays is a leading consumer bank in the UK. This strategic relationship with the UK's largest retailer will help create new distribution channels for our unsecured lending and deposit businesses. We are able to bring our expertise in partnership cards developed over decades in the US to enhance further the highly successful Tesco Clubcard loyalty scheme.

“This partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business. We are looking forward to working closely with the team at Tesco over the coming months to enable a smooth transition and, subject to completion of the transaction, we look forward to welcoming Tesco Bank colleagues and customers to Barclays."