Standard Life pulls out of mortgage market in £226m sale

STANDARD Life yesterday sold its banking operation to Barclays for £226 million in a move that will be watched for closer ties between the two companies.

The cash deal signals Standard Life's withdrawal from the mortgage business, but under a strategic agreement the Edinburgh-based insurer will provide pension products, mainly self-invested personal pensions to Barclays customers. It is understood it could lead to other savings and investment products being sold through Barclays.

Britain's second-biggest bank will take on 78,000 mortgages and £8.8 billion of outstanding balances, and a savings book of about £5.5bn in 287,000 accounts. The deal will add about 10 per cent to Barclays' mortgage loan book, which stood at £84.4bn at the end of June, and 6 per cent to its deposit balance of £88.5bn. About 270 Standard Life employees will transfer to Barclays when the deal completes. They will move from the Canonmills area to Exchange Crescent, Edinburgh.

Barclays, which has weathered the crisis better than most rivals and stayed out of state hands, said the deal fitted its aim to target high-quality loan and savings books.

Standard Life launched its bank in 1998 and became known as one of the relatively few British lenders offering long-term fixed-rate mortgages and focused on lending to customers with a sound credit history.

Ray Boulger, of mortgage broker John Charcol, said the "announcement isn't great news for consumers, as it means that one of the dwindling number of brands still active in the mortgage market may well disappear next year when the sale is concluded.

"Standard Life Bank is one of the few lenders still offering mortgages with fixed rates for longer than five years and is one of a small number of lenders still in the buy-to-let market."

But Standard Life said it no longer sees growing the volume of lending activity as being consistent with the long-term financial objectives of the group.

Sir Sandy Crombie, chief executive of Standard Life, said: "Since 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.

"The transaction we have agreed with Barclays, along with the strategic agreement we have also announced, supports our plan for growth as an asset managing business and will result in significant potential for future value creation for both parties.

"Barclays is an attractive partner for Standard Life, and also provides continuing security for the existing depositors and bondholders of Standard Life Bank. We look forward to working with Barclays to shape this strategic agreement and explore new market opportunities."

Standard Life Bank made an underlying pre-tax profit of £26m in 2008, but it dramatically scaled back operations in response to the banking crisis and house-price slump, with 2008 gross lending down 70 percent on the year at £1.1bn.

Standard Life shares were up 3.4p at 226.9p, while Barclays were down 8.85p at 352.6p, in a weak UK bank sector.

The Standard Life Bank brand will continue for the short term but longer term is expected to be absorbed into Barclays.

Frits Seegers, Chief Executive of Barclays Global Retail and Commercial Banking, said: "The acquisition of Standard Life Bank is a good fit with Barclays' UK retail banking business.

"We look forward to working together with Standard Life in the long-term savings and investments sector. "