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Highlights:
- Barclays has announced that it will buy Kensington Mortgage Company Ltd. for about £2.3 billion.
- With the acquisition, Barclays is aiming to improve its footprint in the mortgage lending sector.
House prices continue to rise despite the cost-of-living crisis. Additionally, the Bank of England raised the interest rates again recently to curb inflation, which reached 9.1% in May. Amid the rising rates, banking major Barclays (LON: BARC) has reached an agreement to buy Kensington Mortgage Company Ltd. in a bid to expand its reach in the UK's housing market.
The deal, valued at approximately £2.3 billion, is one of Barclays's largest acquisitions and indicates its huge bet on the real estate market. As per a statement from the company, the deal's final value will depend on the size of Kensington's mortgage book at the time of the completion. The acquisition is estimated to be completed by December, and Kensington's portfolio of UK mortgages is expected to be around £2 billion by that time.
Barclays is buying the company from private equity owners Blackstone and Sixth Street, who have been its joint owners since 2015. The sale follows an auction process that drew interest from several bidders.
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What will Barclays gain from the deal?
With the rising interest rates, the profits for mortgage lenders will also go up. The acquisition is also expected to boost Barclays' position in the market. With a 10% share, it is currently the fifth-largest mortgage provider in the country, according to a Financial Times report citing data from UK Finance.
As per Matt Hammerstein, CEO of Barclays Bank UK, this is an exciting opportunity for the lender to broaden its product range and capabilities.
Notably, the timing of the acquisition is also a topic of discussion amid the economic uncertainties and the cracks appearing in the housing market.
Q1 2022 performance of Barclays
In the three months to March, Barclays posted solid growth in revenue and profits with an income of £6.5 billion, a 10% rise on a year-on-year basis. The group's profit before tax reached £2.2 billion, while the return on tangible equity (RoTE) stood at 11.5%. For FY 2022, the company is targeting a RoTE of above 10%.
From its UK business, the group earned a profit before tax of £594 million, while its total income rose by 5% to £1,649 million. It posted a net interest income of £1,339 million from the region, and the net interest margin reached 2.62% from 2.54% in Q12021.
Share price performance of Barclays
Barclays is a constituent of the blue-chip FTSE 100 index and among UK's four banking majors or the 'Big 4'. With a market cap of £25,556.95 million, it is one of the most closely watched shares in the market. Over the past one year, the share value has depreciated by 9.09%, while on a year-to-date basis, it has come down by 15.01% as of 24 June 2022.
Shares of the company rallied after the announcement of the acquisition on 24 June, the share price closed higher by 3.15% at GBX 158.94.
Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.
