The Visa IPO--an Investment in the Next Big Thing (to Crash)
Visa's IPO Could Ease Some Banks' Subprime Pain Credit Card Firm Seeks to Raise $18.8 Billion
By Tomoeh Murakami Tse Washington Post Staff Writer Tuesday, February 26, 2008; D01
Visa said Monday that it is looking to raise as much as $18.8 billion in what would be the largest initial public offering ever for a U.S. company.
In a filing with the Securities and Exchange Commission, Visa said it plans to offer 406 million shares at $37 to $42 each, with an option for the deal's underwriters to buy an additional 40.6 million shares.
If it goes well, the Visa IPO would give a boost to its member banks, which include Bank of America, J.P. Morgan Chase, HSBC, Capital One and Citigroup. Some banks have been hit with billions of losses on subprime mortgage-related securities and have actively been looking to raise capital.
The banks are too scared to loan to each other, Bank of America and Citigroup are on the edge of disaster and even the Arabs and Chinese are wary of being the next patsy for Wall Street's various cooked-up frauds.
So . . . the next big unsuspecting dummy is . . . (drumroll) investors. Why not? They fell for all that sub-prime hoopla.
The very people who have been vacuumed of their assets by fraudulent 'derivatives' are now going to be taken to the cleaners by the more direct VISA initial public offering (IPO).
Not to worry that IPOs have been shelved by major privatizations for lack of investment liquidity.
Not to worry that its hardly a secret that the next big disaster for already crippled banks is credit-card default.
Not to worry that VISA is an inflated liability waiting to be formally recognized as a 'bubble.'
The carnival barkers who have (thus far) been able to keep the Dow Jones above 12,000 have a dandy little investment for all you folks who missed out on the Brooklyn Bridge or the Master-Card IPO. Master Card (they tell you with a wink and a nod) opened at $34, less than two years ago and look at it now . . . (drumroll) over $200.
Not to worry that two years ago any house with a front door and a roof that didn't leak was appreciating by 20% a year.
Not to worry that two years ago the wheels still seemed to be bolted on to a runaway stock market.
Not to worry that fraud has squeezed the last of the liquidity out of an exhausted, fearful and untrusting market.
Not to worry that the banks lined up to feed off this new carrion are too terrified to lend any of their money and want some of yours instead.
There are so many not to worrys that a prudent investor might almost be worried.
So, what's the risk? Visa just moves money from shopkeeper to bank. They don't take the risk of cardmember default.
Don't be too sure of that. As the economy gets tighter and people become more desperate, their credit-cards become the cash of last resort. They max them, take new ones and max the new ones. VISA cards are issued by banks and Universities and Moose Lodges, United Airlines and L.L.Bean. As 'lenders,' they have a responsibility to lend (authorize), well . . . responsibly.
You can bet your blue-jeans that VISA card issuers are going to go directly to the courts if they lose billions and those billions can be connected to irresponsible authorizations. That's a source of potential liability.
A source of potential loss is the very thing that makes VISA attractive. Billions out there at 18%. Who wouldn't want a part of that? But what happens when consumers go bankrupt, simply walk away from their debt or pull in their spending habits? All of a sudden those billions at 18% are reduced by half, or 60-80 percent.
Not so profitable.
An IPO that opens at the expected $40 per share, if it actually sells out, may be worth $8 in two years.
Let's hope VISA's owned by the Dubai sheikhs or Chinese.