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 anticipation of strong growth in credit card usage, handing a much-need payday to the 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 Wireless Service Inc's $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.

"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.

Visa's 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 decline of more than 2 percent in all three major stock indexes.

Visa is using about $10.2 billion of IPO proceeds to redeem stock. The top three stakeholders will get about $2.4 billion, with about $1.3 billion going to JPMorgan, about $626 million to Bank of America and about $436 million to National City.

The stakeholders also stand to reap billions of dollars more when lock-up agreements expire, and they become eligible to convert their remaining Class B stock into Class A common shares, which can be sold.

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 September 30.

Visa Inc has said in U.S. regulatory filings that the value of total volume (the sum of total payments volume and cash volume) for the 12-month period ended June 30, 2007 was $3.5 trillion. MasterCard Inc (MA.N)has said in regulatory filings that gross dollar volume on cards carrying the MasterCard brand was about $2.3 trillion in 2007.

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.

The Nilson Report, an industry newsletter, projects that by 2010, 70 percent of all payments will be made with credit or debit cards.