Why did investors send this ASX lender surging 7% higher today?

Nick Sundich Nick Sundich, July 13, 2023

ASX lender Virgin Money (ASX:VUK) has risen 7% today and there’s arguably a good reason.

All ASX lenders have been trying to convince investors that their customers aren’t feeling the pinch to the extent that is feared. Just about all of them (except the major banks) have been unsuccessful…until now.






Virgin Money a standout ASX lender?

This morning’s catalyst was the Bank of England’s Annual Cyclical Scenario (ACS) Stress Test which Virgin passed with flying colours.

The ACS Stress Test was designed to assess its ability to absorb a shock worse than the GFC. Specifically if UK GDP fell 5%, unemployment rose to 8.5%, residential property prices fell 31% and inflation reached 17%. Clearly, an extreme scenario!

Its CET1 ratio low point was 10.8% in Year 3 of the test, compared to the Group’s reference rate of 5.9%. The low point under stress is 4.4% in Year 2 compared to a reference rate of 3.3%. In Year 1, it was 9.7% vs a drawdown rate of 4.8%.

In a nutshell, this means the bank is positioned ahead of its own expectations.


So what?

Virgin told shareholders it anticipates doing something few other lenders will do (other than the big banks of course), in buying back shares. Having halted the program previously, the company said subject to Board and regulatory approvals it would do so.

It also expects to pay out dividends at the levels of company policy, again subject to board and regulatory approval. It anticipates operating above a 14% CET1 ratio in 2023.

This is certainly good news for shareholders of Virgin Money. What it means for other ASX lenders is harder to tell. It will be up to each and every individual company to prove that they are resilient.


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