By Elena Vardon


Barclays agreed to sell its German consumer finance business to a subsidiary of Austrian bank Bawag Group as it continues to execute its strategic plan to simplify its business.

The British lender said that the unit--which offers diversified retail banking services to the German and Austrian markets--will be bought for a small premium to net assets which will be paid in cash when the deal closes.

The business, which is called Consumer Bank Europe and has been operating in Germany for over three decades, had 4.7 billion euros ($5.07 billion) in gross assets--mostly from card and loan receivables--as of March 31, it said. Around EUR2 billion of these are credit-card receivables, Bawag's main focus.

Earlier this year, Barclays laid out a three-year turnaround plan with the aim to simplify the bank and rejig its divisions. Part of its strategy focuses on exiting businesses that don't have a strong fit and reallocate capital to other areas that can better generate returns or, when that can't be achieved, to return excess cash to shareholders.

The agreement announced on Thursday confirms the sale of the Hamburg-based business, which had been classified as "held for sale" and considered as a non-core asset.

The move allows Barclays Europe to focus on its corporate and investment banking and private banking businesses, Barclays Europe Chief Executive Francesco Ceccato said. "We remain committed to our broader German and European operations and look forward to continued growth in the region during 2024 and beyond."

In a note to clients, Citi analysts noted that the major remaining outstanding item for Barclays now is to partner for the merchant-acquiring component of its payments segment, which handles credit and debit card transactions on behalf of companies.

The disposal should release around EUR4.0 billion in risk-weighed assets and raise the bank's common equity Tier 1 ratio--a measure of capital strength--by around 10 basis points upon the deal's completion, it said. This is expected within six to nine months, subject to the necessary approvals.

For Bawag, the transaction aligns with its strategy to grow in its core markets--which include Germany and Austria--and is expected to represent a pretax profit contribution of more than EUR100 million in 2027 after the unit is integrated and should consume around 140 basis points in CET1 capital, the Austrian group said in a separate statement.

The company intends to hold a capital markets day once both this deal and its purchase of digital bank Knab from Dutch insurer ASR Nederland close in the coming months, in order to incorporate the impact of the transactions into their targets.

"The main risk relates to Bawag's operational capacity to integrate two large-scale acquisitions simultaneously, but we take comfort from management's strong M&A track record," JP Morgan analysts said.

Shares in Bawag and in Barclays both traded around 1.7% higher in midday exchanges in Vienna and London, respectively.


Write to Elena Vardon at elena.vardon@wsj.com


(END) Dow Jones Newswires

07-04-24 0819ET