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KAI RYSSDAL: The smart money would seem to be saying, run. Run.
run. Run far and run fast, but then again it’s not like the stock markets ever made sense. Visa walked right up to Wall Street today and introduced itself as if we were in the middle of a raging bull market. The world’s biggest credit card network has filed for a blockbuster initial public offering, almost double the previous record.
Our New York bureau chief Jill Barshay explains why Visa’s riding high.
JILL BARSHAY: This IPO will change the shape of Visa. Right now Visa is owned by thousands of banks collectively. Marc Sacher specializes in credit cards at Aurriema Consulting Group. He says after the IPO, Visa will be mostly owned by investors who buy shares.
MARC SACHER: Previously, their directive was not really to make a profit, but rather to serve the interest of their members. Now, going forward they’re going to be a for-profit company.
Sacher says the credit crunch isn’t hurting Visa. It’s the member banks who have to worry if you pay your bill or not. Visa’s money come from the fees it gets every time you buy something with the card.
SACHER: We continue to, as a society, to move toward electronic payments, and because Visa, in particular, has such a great positioning in that space, I think any time is a good time for them to go to market.
Mastercard held an IPO in 2006. Since then, its stock has quadrupled. Rich Melville is the managing editor at American Banker. He says credit card companies are facing billions of dollars in lawsuits from retailers over transaction fees. The banks that own Visa want to transfer that responsibility to the public.
RICH MELVILLE: The banks are then distanced from litigation risk. If Visa loses the lawsuit from the retailers, the banks don’t have to pay out of their own money. It’s Visa’s headache.
Some of the $19 billion will go to pay off the retailers. Another big chunk will help shore up the member banks’ balance sheets.
In New York, I’m Jill Barshay for Marketplace.