Tags: Mike Caggeso, Visa

Weakened Financials Strut Their Visa IPO Profits

By , Money Morning •

By Mike Caggeso
Associate Editor

Visa Inc.'s (V) record-setting $17.86 billion initial public offering (IPO) last month provided a much-needed dose of good news to the economic mire we're in.

With main indices down significantly since Jan. 1, a slew of companies - including many financial firms - recently (and gladly) offered to share how much they pocketed from their stake in Visa's IPO:

  • Bank of Hawaii Corp. (BOH) said its net income would jump by $7 million to $9 million in the first quarter, much of which will come from a mandatory redemption of its Visa stock, the Star Bulletin reported.
  • National City Corp. (NCC) said it would post a $450 million cash gain from selling about one third of its stake in Visa, BusinessWeek reported.
  • West Virginia's City Holding Co. (CHCO) banked $2.3 million from a partial redemption of its Visa holdings.
  • Overseas, federally owned Banco de Brasil took in $207 million from selling a portion of its Visa stakes. Its private sector rival Banco Bradesco (BBD) made $201 million from Visa's IPO. Both figures are before tax, Business News Americas reported.

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  • South African bank FirstRand said last week that it received a pre-tax gain of $123 million from its shareholding in Visa, iAfrica reported. Of that, $69 million was from the sale of its Visa's shares and $54 million is the value of the remaining shares. FirstRand is locked into holding those remaining shares for three years.
  • Melbourne-based Australia and New Zealand Banking (ANZBY) reported that it expects to pocket $350 million pre-tax from 50% to 60% of its shares in Visa. Follow Aussie banks National Australia Bank and Westpac are expected to turn a $200 million and $100 million profit, respectively, The Age reported. 
  • And in China, China Life Insurance (LFC) sunk $300 million into Visa's IPO. Assuming it bought its shares at Visa's opening price of $44 a share, that investment is now worth more than $439.5 million at Friday's $64.46 closing price. Also, China Investment Corp. - the country's $200 billion sovereign wealth fund - made an undisclosed investment in Visa's IPO, Today's Financial News reported.

"It's not standard practice to say it, but typically big institutions do if they are part of the IPO process and receive allocation," said Money Morning Investment Director Keith Fitz-Gerald.

Still a Buy?

For its March 19 IPO, Visa's 406 million shares were originally priced at $44 each - well above the expected price range of $37 to $42 a share. The $17.86 billion proceeds it took in made it the biggest U.S. public offering, shattering the $10.6 billion AT&T Wireless raised in its April 2000 IPO.

Globally, only one deal was larger: The October 2006 IPO of the Industrial & Commercial Bank of China, or ICBC, which raised $19.1 billion - or nearly $22 billion when the over-allotment provisions were fulfilled.

However, $44 was the price underwriters and large-scale investors got in at.

Visa's shares opened at $59.50 on the New York Stock Exchange (NYX), and traded as high as $65, before closing at $56.50, up $12.50 a share, or 28.41%. The following day, shares jumped another 13.89%.

The initial run-up and continued growth gives the San Francisco-based Visa a market value of more than $52 billion.

And shareholders are still piling on - despite companies publicly declaring they are cashing out - because of Visa's dominant market position and the growing shift into electronic payments.

"Visa's CEO has got it together," Fitz-Gerald said. "He's targeting Chinese growth and that should go right to the bottom line."

As far investing in the company, Fitz-Gerald suggests buying in increments to capture safest gains.

"I wouldn't jump all in now, but there is long term value."

News and Related Story Links:

  • Associated Press:
    City Holding Gets $2.3M for Visa
  • Today's Financial News:
    Visa IPO Aftermath: Europe's in trouble, but China's buying
  • Money Morning:
    After its Record U.S. IPO, Visa's Shares Post Double-Digit Gains for Second-Straight Day