Lloyds Banking Group PLC (LON:LLOY) subsidiary Halifax has agreed to buy the UK residential mortgage portfolio of Tesco PLC’s (LON:TSCO) banking division for £3.8bn in cash.
Tesco announced in May that it was considering the sale of its mortgage portfolio, which has more than 23,000 customers, after coming under pressure from tough competition.
The supermarket group had put the brakes on new mortgage lending while it explored options to sell the portfolio.
On Tuesday Tesco confirmed the sale of the portfolio to Lloyds, saying the deal was in line with its bank division’s plan to cut costs and reduce the number of products and services.
Tesco Bank will reinvest the proceeds from the disposal into improving its customer offerings, transforming the business and “re-balancing” retail and funding sources given the reduced overall lending.
Gerry Mallon, the chief executive of Tesco Bank, said: "Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.
“As a result, we made the decision to move away from our mortgage offering.
“Our priority throughout has been to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”
The purchase price represents a 2.5% premium on gross book value, according to Lloyds.
Lloyds said the deal was consistent with its strategy and would be “value accretive” to shareholders.
The lender said its strong free capital build has given it the flexibility to consider such acquisitions.
It expects the portfolio to generate good returns in excess of “current organic market opportunities” and to boost its mortgage book.
Lloyds now predicts its open mortgage book assets at the end year to be ahead of the 2018 balance.
In the year to 28 February 2019, Tesco Bank’s mortgage portfolio generated income of £81mln and a pre-tax profit of £9.1mln. The lending balance stands at £3.7bn.