In a shaky economy, is Visa's IPO the answer?
Yesterday, Visa, the gargantuan credit card company, announced that it will be be switching from a privately-held interest to a publicly-traded company. Its initial public offering of stock, which will probably happen on March 20, will involve the sale of 406 million shares of stock, and is expected to raise upwards of $10 billion. This will be among the largest IPOs in U.S. history.
When Master Card released its IPO on May 24, 2006, its stock was initially priced at $39 a share; by close of day, the stock had risen to $46 a share. Currently, it's valued at approximately $196 a share, which is a pretty impressive jump in value. Visa's IPO will probably be comparably priced, and will probably rise accordingly.
What does all this mean for you? Well, if you can get your hands on some Visa stock, it's likely that you will end up with a tidy little profit, although many analysts are predicting that Master Card's amazing growth record will artificially inflate the price of Visa's stock. A more immediate effect is that this sale will flood the coffers of some of the country's largest banks, including JPMorgan Chase (which owns 23% of Visa), Bank of America, and Citibank.
Optimists are arguing that this huge influx of cash will allow Visa to breathe easier and may enable it to keep credit rates low. While I'd like that to be the case, it doesn't really seem all that likely. A more realistic scenario might involve some of the nation's largest banks and one of its largest credit card companies, flush with cash, deciding that they don't really need to work with consumers on defaulting loans. While many banks and credit companies are currently offering very good deals to over-extended borrowers, I wonder if they'd be quite so generous if they didn't need the money so badly.
Regardless, we'll know the outcome by the end of March!