Tesco's banking sale is the latest sign UK food retailers are shifting their focus back to the 'bread and butter' of their core business.
Russ Mould at AJ Bell said: "We’re in an era where companies are going back to basics – focusing on what they do best and letting non-core operations either be outsourced or sold."
Tesco Chief executive Ken Murphy said the transaction will significantly reduce its financial liabilities, and strengthen the balance sheet and allow "us to focus on continuing to grow our core retail business”.
Rival UK supermarket chain J Sainsbury PLC (LSE:SBRY) (J Sainsbury PLC (LSE:SBRY)) last month announced a phased withdrawal from its core banking business. This followed a review of its Financial Services division as part of its 'Food First' strategy.
Clive Black at Shore Capital called today’s deal an "outstanding outcome," for shareholders.
"For Tesco shareholders, this deal removes a frankly non-core activity, where it was a small fish in a ponder of banking aquatic monsters, requiring considerable capital to compete".
UBS said the removal of the banking operations would mean "greatly simplified financial reporting increasing the visibility and reducing the risk.”
Tesco Bank was formed in July 1997 as part of a 50:50 joint venture with The Royal Bank of Scotland. Tesco later acquired Royal Bank of Scotland shareholding. It had previously had a banking partnership with NatWest.
It followed the successful launch of Sainsbury's Bank by its main competitor, Sainsbury's in February 1997.
This came as food retailers ventured outside of their traditional boundaries into areas such as clothing, finance and home appliances.
"Grocery companies have tried lots of things over the years to apply their brands to different areas beyond food and drink," said AJ Bell's Mould.
Some of these initiatives have provided a nice additional income, others haven’t worked out as planned," he commented.
But an increasingly competitive landscape has seen the arrival of discounters Lidl and Aldi, who have moved to grab market share through lower prices.
This has prompted food retailers to invest more in price than in non-core areas.