Visa Shares Soar in Boon to Bank Owners

By Lilla Zuill

NEW YORK (Reuters) - Visa Inc (V.N) shares soared as much as 38 percent on Wednesday in their debut on expected growth in global credit card usage, handing a much-need payday to the beleaguered U.S. banks among Visa's stakeholders.

More than half of the proceeds of Visa's record $17.9 billion initial public offering will go to JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), National City Corp NCC.N, Citigroup Inc (C.N) and the other banks that are Visa shareholders.

AT&T's (T.N) $10.6 billion IPO in 2000 had been the U.S. record. Visa's IPO would place second worldwide after Industrial & Commercial Bank of China Ltd's (601398.SS) $22 billion IPO in 2006, according to Reuters Data, if an overallotment option is exercised.

Visa is using about $10.2 billion of IPO proceeds to redeem stock held by shareholders, including some banks. [nN18476931]

Visa will use $3 billion of the IPO proceeds to cover litigation costs, according to regulatory filings, and the balance will be used for general corporate purposes.

Underwriters of Visa's deal, led by JPMorgan Chase and Goldman Sachs & Co (GS.N), have an option to purchase an additional 40.6 million shares to cover overallotments, which could boost proceeds by about $1.8 billion.

Visa has said it expects to pay underwriters' fees of about $500 million.

Visa is the world's largest credit card network. It processed 32.7 billion transactions in fiscal 2007 compared with MasterCard Inc's 18.7 billion in processed transactions, according to their regulatory filings. Visa's fiscal year ended Sept. 30.

The stock, sold in an IPO on Tuesday at $44, opened up 35 percent and rose as high as $60.60 on the New York Stock Exchange. It closed up 28.41 percent, or $12.50, at $56.50, despite a slide in the broader stock market.

"This is where those (banks) who have worked with the firm along the way get to cash out, and receive a reward for all of their efforts," said James Owers, professor of finance at Robinson College of Business at Georgia State University.

"The extra wealth is particularly valuable at this time given the challenges to many of the major players," Owers said.

MORE PLASTIC AS ECONOMY WEAKENS

While banks that issue credit cards are bracing for write-downs on bad debt amid a weakening U.S. economy and tighter credit, payment processors like Visa are seen as well placed to benefit as more people use credit cards to pay for everyday expenses like a cup of coffee and a taxi ride.

"Visa enjoys one of the widest economic moats that a company can desire -- a network that connects thousands of financial institutions," Morningstar analyst Michael Kon wrote in an investor note. It would be very hard for a rival to duplicate that network, he said.

San Francisco-based Visa, which processes transactions for credit and debit cards, is one of the companies best positioned to benefit from growing consumer reliance on "paper-free payment methods," said Kon, who assigned the shares a fair value estimate of $74.