HIGH street lender NatWest has swooped for Sainsbury’s Bank in a deal worth £2.5 billion, adding one million customer accounts as it moves to accelerate the growth of its retail banking business.

The deal comes after the UK’s second-biggest supermarket in January said it wanted to focus on its core grocery and retail operations and would instigate a phased withdrawal from its core banking business after 27 years.

NatWest Group chief executive Paul Thwaite, the veteran banker who replaced Dame Alison Rose after she resigned last year amid a high-profile furore when she discussed Nigel Farage’s bank account with a BBC journalist, said at the time of his appointment in February that a key area of his strategic focus would be to “drive disciplined growth within our customer businesses”.

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Under the terms of the deal, NatWest will buy most of Sainsbury’s banking business which amounts to approximately £2.5bn of gross customer assets comprising £1.4bn of unsecured personal loans and £1.1bn of credit cards balances, together with approximately £2.6bn of customer deposits.

The operational infrastructure and commission income businesses of Sainsbury’s Bank including ATMs, insurance and travel money are not included in the transaction. Argos Financial Services is also not included.

There will be no immediate change for Sainsbury’s Bank customers, with migration expected to complete by the end of next year.

Expected to close in March next year, the deal will see Sainsbury’s pay NatWest an agreed £125 million on completion.

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Mr Thwaite, describing the acquisition as a “great opportunity to accelerate the growth of our retail banking business at attractive returns, in line with our strategic priorities”, said: “As well as a complementary customer base, the transaction is expected to add scale to our credit card and unsecured personal lending business within existing risk appetite.

“NatWest Group has a strong track record of successful integration, and we are focused on ensuring a smooth transition for customers.”

The group had previously stated that it would consider growing its business through acquisitions if they had “compelling shareholder value and strategic rationale”, and had also identified credit cards as an area for growth.

Simon Roberts, Sainsbury’s chief executive, described NatWest’s values and customer focus as a “close fit with ours”, noting: “As one of the UK’s leading banks, NatWest’s scale and financial services expertise will ensure our existing financial services customers continue to be well looked after. There will be no immediate change for our bank customers as a result of this announcement.”

He added: “We will focus all our time and resources going forward on growing our core retail business, delivering great quality and value, week in week out.”

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Analysts reacted positively to the news which is the latest in a wave of consolidation in the banking sector with Nationwide’s £2.9bn takeover of Virgin Money expected to complete towards the end of 2024. In February, Tesco announced the sale of most of its banking arm to Barclays in a deal worth up to £1bn.

AJ Bell investment director Russ Mould commented: “The big supermarket slimdown continues with pace as Sainsbury’s follows Tesco in selling its core banking operations. The deal makes sense as it leaves Sainsbury’s with a sharper focus on food and general merchandise.

“It’s no surprise the market has given the thumbs-up to Sainsbury’s disposal. The supermarket has been on a roll over the past few years with its strategy of focusing primarily on food and removing any distractions elsewhere in the business could help to oil the wheels.”

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At Quilter Cheviot, analyst Will Howlett suggested that in the UK banking landscape NatWest’s acquisition of Sainsbury’s banking division is a modest one, with Sainsbury’s holding approximately £2.5bn in assets compared to NatWest’s near £700bn. “However, it’s the strategic implications that are of interest here,” he noted.

“This move is indicative of the ongoing consolidation trend within the banking sector, which we have been anticipating. The acquisition allows NatWest to diversify its offerings and tap into Sainsbury’s established customer base, potentially leading to a more integrated financial services model within the retail space.

“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.”