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Visa Breaks IPO Record

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Electronic transactions on the rise even as credit bubble bursts.

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In what will be the largest IPO in U.S. history, Visa Inc. (V) will issue some 406 million shares today and raise approximately $18 billion for its cash-starved owners. Shares priced above the expected range of $37 to $42, according to The Wall Street Journal.

Visa's IPO provides a much needed capital infusion to banks reeling from writedowns and takeovers of insolvent financial institutions. JP Morgan (JPM), its largest shareholder, will pocket $1.1 billion, Bank of America (BAC) $616 million, National City (NCC) $440 million and Citigroup (C) $299 million.

The timing of the IPO is a bit ironic, quipped Professor Depew yesterday, as the world's largest credit card network comes to market amidst the largest debt crisis since the Great Depression.

Visa has a tough act to follow. Fellow transaction processor MasterCard (MA) went public last year and has seen its shares leap from $40 to above $200. Visa, like MasterCard doesn't take on credit risk; instead it picks up a small fee for each transaction it facilitates. The business model should not be confused with Discover (DFS) or American Express (AXP), who issue cards in addition to assuming credit risk.

As the chart below demonstrates, investors understand the difference.


Click to enlarge image


Increased electronic transactions as a global trends means, regardless of how the current financial turmoil plays out, in the long run Visa will benefit from developing countries embracing economic development. According to Business Week, young Chinese consumers are embracing credit and debit cards, even as their parents' generations still shun plastic in favor of money.

Although in the near term it may face challenges navigating a choppy world economy, as the world grows increasingly interconnected, Visa will profit from connecting the dots.

No positions in stocks mentioned.

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