Judo Capital Holdings Ltd (ASX: JDO) shares are catching the eye on Friday.
In morning trade, the ASX 200 bank stock is up 12% to $1.56.
As a comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.75% at the time of writing.
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Why is this ASX 200 bank stock jumping 12%?
Investors have been buying the small business lender's shares after responding positively to the release of an announcement before the market open.
According to the release, the ASX 200 bank stock has successfully priced a $750 million capital-relief securitisation transaction backed by small and medium enterprise (SME) business loans.
It notes that the transaction attracted strong investor support, enabling Judo Capital to upsize the transaction from an initial launch amount of $500 million to $750 million.
Management advised that the notes are priced at a weighted average of 171 basis points over one-month BBSW. This represents an improvement of 102 basis points compared with Judo Capital's inaugural transaction completed in September 2023 at 273 basis points over the one-month BBSW.
The company confirms that the transaction qualifies for regulatory capital relief. As a result, following completion of the transaction, Judo's Common Equity Tier 1 (CET1) ratio (at 31 March) will increase to 13.2% on a pro forma basis. This is up from its reported CET1 ratio of 12.6%.
In addition, the transaction does not impact the reporting of loans in Judo Capital's accounts. The underlying business loans will continue to be reported as gross loans and advances and generate interest income.
Return on equity boost
The ASX 200 bank stock revealed that the transaction is highly accretive to its return on equity (ROE).
Following the transaction, Judo Capital will generate a significant net interest margin on the underlying business loans without needing to hold capital for these assets.
Assuming a normalised level of capital, the transaction is estimated to deliver a 25 to 30 basis points pro-forma benefit to FY 2027 ROE.
Commenting on the transaction, Judo Capital's CEO, Chris Bayliss, said:
We are very pleased with the strong support received for this transaction from a broad range of domestic and international investors. The transaction strengthens Judo's CET1 position and increases our flexibility to support continued lending growth, while also improving ROE.
The transaction also demonstrates that we have multiple levers to actively manage capital, providing increased optionality, including the potential to consider capital management initiatives in due course.
