Barclays has snapped up Standard Life Bank in a £226 million cash deal as it looks to beef up its mortgage and savings operations.
The sale will give Barclays a savings book worth around £5.5 billion and a mortgage book with outstanding balances of approximately £8.8 billion, with an average loan to value of 48%.
Barclays also announced today that its UK retail division will join forces with Standard Life to explore the UK retail long-term savings and investment market. This will initially focus on the development of a multi-channel, simplified pension product.
Standard Life Bank reported underlying profit before tax of £26 million in 2008 and profit of £15 million during the first six months of the current year. The insurer says the bank has traded well since then.
The insurer had high high hopes for its banking division when it launched in 1998, with the ambition being to compete with the likes of Royal Bank of Scotland by pioneering telephone banking.
However, after a stellar year in 2006, the banking arm went into decline with 2007 underlying pre-tax profits down 16% to £32 million.
Sir Sandy Crombie, chief executive of Standard Life, says: "Since its launch in 1998, Standard Life Bank has grown steadily but we no longer believe that increasing the lending activity of the bank is consistent with our long-term financial objectives."
He adds that the sale supports its plan for growth as an asset managing business.
The move, driven by finance director David Nash, is music to the ears of Standard Life's investors who have long had doubts over the banking division's fit within the group since it floated on the London Stock Exchange back in 2006.
About 270 Standard Life employees will transfer to Barclays when the deal goes through in the first quarter of 2010 - subject to regulatory approval.
However, there are concerns the move will be detrimental to borrowers. Standard Life Bank is one of the few lenders still offering mortgages with fixed rates for longer than five years and is also one of a relatively small number of lenders still in the buy-to-let market.
Ray Boulger, senior technical manager at mortgage broker John Charcol, warns that Standard Life Bank may disappear next year when the sale is concluded.