February 27th, 2008 by Jamie Estep
Visa has an upcoming IPO planned for this year. They still haven’t released a formal date but it looks like it is going to be mid to late march as predicted.
This IPO may have a far greater affect on the US economy than anyone originally imagined. Because of the current credit and mortgage crisis, banks don’t have a good financial outlook for the coming year, or any year in the near future. Fraudulent mortgages and foreclosures are going to continue taking their toll on the banking systems, and the huge rate of inflation isn’t going to help any. Visa’s IPO could really change all of this.
Visa is composed and run by member banks with a board of directors consisting of members from JP Morgan Chase, BOFA, Wachovia, US Bancorp, Wells Fargo, Providian, First National of Nebraska, Texas First Bank, NationalCity, and SunTrust. While Visa itself remains non-profit, the banks that issue Visa cards and run Visa are certainly for-profit companies. When Visa goes public, the member banks are going to get a lot of pre-IPO stock. If we base Visa’s potential success from MasterCard’s IPO last year, Visa’s stock value could go up by four times, soon after their initial offering. Even though the economy isn’t in the same shape as it was last year, Visa is a far stronger company than MasterCard was, and there is little doubt to Visa’s strength even in a poor market. Visa is more than double the size of MasterCard by transaction volume, and this IPO should prove to be the second largest in world history, largest in US history.
If Visa’s stock sells for the median predicted price of about $40 per share, the primary member banks are going to get some major relief. The pre-IPO value that member banks are expected to receive is: JPMorgan Chase about $1.1B, BOFA $545M, National City $380M, Citigroup US Bancorp and Wells Fargo about $240M each. This should immediately go up after the IPO, and like MasterCard could be four times higher in a few months.
This huge increase in capital for these banks will have a cascading effect on their own stock, which should dramatically increase. Banks are having a hard time maintaining their current value and Visa could create a surge of investment that could turn things around. There’s probably not anything that’s going to turn around the mortgage and credit crunch, but a $17 – $50 billion bump in bank stock should really help investors regain some trust.