NatWest will take on most of Sainsbury’s banking business, in a deal that will add 1m customer accounts to the lender’s books in the latest wave of consolidation in the sector.
The lender is to take on the bulk of Sainsbury’s Bank assets, including its outstanding credit card, unsecured personal loan and savings accounts.
Sainsbury’s Bank had been up for sale since January, when the supermarket group announced it would exit its banking business after 27 years.
NatWest will acquire £2.5bn of customer assets, including £1.4bn of unsecured personal loans and £1.1bn of credit card balances. It will also take on £2.6bn of liabilities, primarily made up of customer deposits.
Unlike most takeovers, the seller is paying a significant sum to get the deal done: Sainsbury’s is on track to pay NatWest £125m to take the business off its hands, with the final price to be determined when the deal is completed in early 2025.
The arrangement reflects the supermarket’s desire to quickly off-load its non-core businesses and focus primarily on food, and the fact that NatWest will be taking on more liabilities than assets as part of the deal.
It also indicates a much wider issue, with UK banks having long been valued much lower than the assets on their balance sheets.
Some Tory ministers have blamed this on lingering concerns over the impact of Brexit, as well as a perception that banks face a hostile political environment in the UK. Those concerns were amplified when the Conservative government pushed NatWest’s chief executive, Alison Rose, to resign last year after a row with Nigel Farage, now the leader of Reform UK.
However, investors broadly welcomed the terms of the Sainsbury’s Bank deal. The supermarket’s shares rose as much as 2.5% after the deal was announced on Thursday, while NatWest was up 1.7%.
“It’s no surprise the market has given the thumbs up to Sainsbury’s disposal,” the AJ Bell investment director Russ Mould said. “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.”
Clive Black, the head of consumer research at Shore Capital, said the deal was “another good move” by the Sainsbury’s chief executive, Simon Roberts. “All in all, we welcome the announcement that Sainsbury has disposed of its core banking business, and at a pace that is faster than we originally anticipated … drawing to a close an adventure that had lofty ambitions to be a challenger bank that was thwarted by regulators, technocrats and the power of incumbents.”
Sainsbury’s acted after a strategic review concluded the banking operations could distract from bringing its focus back to its core grocery and retail operations. It first considered selling the bank during the Covid pandemic and NatWest had been suggested as a potential bidder.
Paul Thwaite, the new chief executive of NatWest, has indicated he will consider acquisitions if they add scale to the business. The latest deal will boost its credit cards business, which NatWest has identified as a potential area for growth.
The NatWest deal does not include certain assets, such as the commission income business of Sainsbury’s Bank or ATMs, insurance and travel money or Argos Financial Services. It is conditional on certain approvals including by regulators.
Thwaite said: “This transaction is a great opportunity to accelerate the growth of our retail banking business at attractive returns, in line with our strategic priorities.”
The deal is the latest in a wave of consolidation among smaller lenders at a time when bank profitability has been bolstered by higher interest rates. This has meant banks’ net interest income has risen as the amount of money they claw in from higher borrowing costs outpaces the sum they pay in interest on deposits.
In recent months, larger lenders have been snapping up smaller rivals. Last month, Coventry building society announced it would buy Co-operative Bank from its hedge-fund owners for £780m to create a mutual with almost 5 million customers and an £89bn balance sheet.
In March, Nationwide, the world’s largest building society, launched a £2.9bn takeover of Virgin Money.
Barclays also agreed to buy most of Tesco Bank for £700m in February from the UK’s largest supermarket chain, which retained some assets, including its insurance and travel money operations.
