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Lloyds Agrees to Acquire Tesco Bank's Mortgage Portfolio

Zacks Equity Research

Lloyds Banking Group plc LYG agreed to acquire Tesco Personal Finance plc’s residential mortgage portfolio. Thus, Tesco Banks’ 23,000 mortgage customers will move to Halifax.

Halifax — which is a unit of Lloyds’ subsidiary, Bank of Scotland — has been serving and supporting mortgage borrowers across the U.K. over several years.

Terms of the Transaction

Per the deal, Halifax will pay a purchase price of approximately £3.8 billion ($4.67 billion). This represents a 2.5% premium on the gross book value of the portfolio.

The transaction will likely be funded using existing internal resources. Moreover, it is expected to have a minimal impact on Lloyds’ capital.

Notably, under Tesco Bank’s ownership, the portfolio generated income of nearly £81 million and pre-tax profit of £9 million in the year ending Feb 28, 2019.

The beneficial ownership of the portfolio is expected to be transferred by September-end. However, the legal title is projected to be transferred by the end of March 2020.

Benefits

Lloyds believes that the transaction will create value for its shareholders.

Moreover, it is expected that once the portfolio is acquired, it will generate returns in excess of current organic market opportunities for Lloyds. As a result of the acquisition, it will get more flexibility in participating within the mortgage market.

Notably, once the transaction is complete, Lloyds expects its open mortgage book assets in 2019 to be ahead of 2018.

Driven by a solid liquidity and capital position, the company remains on track for inorganic growth through strategic acquisitions.

Apart from Lloyds, various other finance companies have also been on the acquisition spree of late. In August, Mitsubishi UFJ Financial Group MUFG acquired shares of nine subsidiaries of Colonial First State Group Limited. Earlier, Canadian Imperial Bank of Commerce CM announced a deal to acquire Cleary Gull Inc. and Raymond James RJF acquired Silver Lane Advisors LLC.

Shares of Lloyds have lost 27% over the past six months compared with the industry’s decline of 12.2%.




Currently, the company carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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