Tesco Bank has sold its entire mortgages portfolio in the UK to Lloyds Banking Group for £3.8bn ($4.6bn), drawing a line under its lending business to homebuyers.
Earlier this year, the supermarket bank announced its intentions to cease new activity in the mortgages sector, citing “difficult market conditions” in recent years.
Part of this strategy was to begin looking for opportunities to offload its existing loan book, which comprises around 23,000 customers in the UK.
The portfolio has a lending balance of around £3.7bn ($4.4bn) and in the 2018/19 financial year generated a pre-tax profit of £9.1m ($10.9m).
Tesco Bank CEO Gerry Mallon said: “In May we announced our decision to stop new mortgage lending while we explored our options to sell the mortgage book.
“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.”
Tesco Bank mortgages portfolio will be transferred to Lloyds subsidiary Halifax
The entire mortgage portfolio will be transferred to Lloyds Banking Group subsidiary Halifax, with beneficial ownership expected to transfer at the end of this month and legal title occurring by the end of March next year.
Mallon added: “After a thorough process, we are pleased to confirm that we have agreed the sale of our mortgage book to Lloyds Banking Group, operating under the Halifax brand.
“We are confident that they will continue to provide our customers with an excellent customer experience.”
Lloyds Banking Group has a strong mortgage business in the UK, and the lender says it expects the new acquisition to “generate good returns for the group” and to help its “open mortgage book assets at the year-end to be ahead of the year-end 2018 balance”.
In a statement, Lloyds said: “The group’s strong free capital build gives us flexibility to consider inorganic growth opportunities in selected target areas where we see value for shareholders.
“The transaction is in line with this approach and demonstrates the group’s strong commitment to the strategically core prime mortgage market.”
Lloyds group director for retail banking Vim Maru added: “This is a good deal for the group, our shareholders, and Tesco’s mortgage customers.
“We believe our Halifax brand will make a good home for these customers and we look forward to welcoming them to the group.”
Sale of Tesco Bank mortgages business raises issue of potential job losses
Tesco Bank, which was established in 1997 as the financial services arm of the UK supermarket giant, has been offering mortgages to customers since 2012.
But the firm, which serves around five million customers, recently revised its strategy to focus on reducing the number of products and services it offers in a bid to shrink the size of its operating and funding costs.
Tesco Bank says the proceeds of the sale to Lloyds will be used for re-investment into its customer offer, ongoing transformation of its business, and a re-balancing of retail and wholesale funding sources.
The announcement in May of the intention to shutter its mortgages business prompted fears of job losses.
Sources close to the deal confirmed around ten Tesco Bank staff will be directly affected by the sale, and would be discussing their options within the business in the coming weeks.
Additionally, around 140 staff from outsourcing firm Capita are used by Tesco Bank to administer the mortgage loan book, although it is understood there will be no immediate change to their contracts in the transition to Lloyds.
