Visa IPO: Traders Use Member Banks & Owners As Back Door Plays (V, AXP, MA, DFS, JPM, BAC, NCC, WFC, C, USB)

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Tonight we are going to get the highly awaited VISA, Inc. initial public offering.  This one has been on the books since November 2007 and we have previously noted that this was going to be one of the largest IPO’s ever.  Visa will trade under the ticker "V" on the New York Stock Exchange.

Visa_logoInvestors have been comparing this directly to MasterCard (NYSE: MA), although they are not comparing it at all to Discover Financial Services (NYSE: DFS).  Many have sent inquiries to us over this one and we’ve seen many stated opinions on this.  A common belief is that many investors have been hiding out in MasterCard shares as the beneficiary, mainly because so many feel this stock has been held up higher by Wall Street so that the Visa valuations don’t get battered.  MasterCard shares are up over 3% today ahead of the close at $208.18, and its 52-week trading range is $105.52 to $227.18.  MasterCard is also one that Jim Cramer has been behind since the start.

The IPO subscriptions are also said to be coming in rather well.  We sent this out to our open email distribution list earlier, but below are the percentage of Class B shares held by member banks.  These appear to be being used as a back door trade on the Visa IPO as they own significant shares in Visa.   Here are the percentages owned of the Class B shares:

  • JP Morgan Chase (NYSE: JPM): Class B 23.3%, selling 29 million shares;
  • Bank of America Corporation (NYSE: BAC): Class B 11.5%, selling 14 million shares;
  • National City Corporation (NYSE: NCC): Class B 8%, selling about 10 million shares;
  • Citigroup (NYSE: C): Class B 5.5%, selling 6.8 million shares;
  • U.S. Bancorp (NYSE: USB): Class B 5.1%;
  • Wells Fargo (NYSE: WFC): Class B 5.0%.

Here you can see the basics from its year-end numbers.  Lead underwriters include JPMorgan and Goldman Sachs.  The syndicate is actually huge.  Others listed are Banc of America, Citigroup, HSBC, Merrill lynch, UBS, Wachovia, CIBC, Daiwa Securities, Mitsubishi UFJ Securities, Piper Jaffray, RBC Capital, SunTrust Robinson Humphrey, and Wells Fargo.  One interesting note is that about $3 Billion is being put into an escrow account after the IPO as a reserve for litigation settlements in its law suits against American Express (NYSE: AXP) and Discover.

We have heard numerous levels issued, but so far the gray-market pricing is said to be $2.00 or more over the high end of the $37.00 to $42.00 price range for 406 million shares.  That number may change before the pricing. If you take the over-allotment of 41 million shares and just use the $42 price at the high-end of the range you get a total gross IPO of $Barring any market or institution blow-ups, this IPO will be the most discussed topic out there Wednesday.

Jon C. Ogg
March 18, 2008

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