Visa shares jump after record $17.9 billion IPO

Investment bankers could still exercise an option to buy another 40.6 million Visa shares during the next 30 days. If that happens, Visa’s IPO will end up raising $19.7 billion before expenses.

Visa has earmarked nearly $12 billion of the IPO proceeds to buy back shares from the banks that helped build up its network over the past 50 years. The biggest chunk, about $1.36 billion, will be paid to its largest customer and shareholder, JPMorgan Chase & Co., according to an updated breakdown filed late Wednesday.

Other major banks cashing in on Visa’s IPO include: Bank of America Corp., National City Corp., Citigroup Inc., U.S. Bancorp and Wells Fargo & Co.

The windfall comes a propitious time, given the banking industry’s wobbly condition as billions of losses pile up from the housing market’s worst downturn since the 1930s.

Another $3 billion from the IPO is being deposited into an escrow account to cover potential liabilities in lawsuits alleging Visa conspired to stifle competition and fix prices.

Those legal problems represent one of the biggest risks to owning Visa stock, although the company’s management maintains the escrow account and contingency measures should adequately protect investors. Visa paid more than $2 billion late last year to resolve a suit with American Express Co., but a similar case brought by Discover Financial Services LLC is scheduled for a Sept. 9 trial in New York.

Visa’s dependence on only a handful of banks that issue most of its cards poses another possible downside, said Aite Group analyst Gwenn Bezard. The company’s five largest customers accounted for $1.2 billion, or 23 percent, of its revenue last year.

Big card issuers like JPMorgan already get special discounts and the pricing pressure on Visa could intensify if more industry mergers further decrease the number of banks using its processing network, Bezard said. That might crimp Visa’s profits.

For now, Visa is planning to trim about $300 million in expenses during the next two years to boost its operating profit margin from 37 percent.

Menlow and other analysts don’t view Visa’s blockbuster IPO as a sign that jittery investors have suddenly become more interested in taking chances on companies going public for the first time.

“This is more like an oasis in the desert,” Menlow said.

The arid conditions have produced just 22 IPOs far this year, down from 47 at the same juncture in 2007.

MORE FROM U.S. BUSINESS

U.S. business Section Front

The Big Money: Facebook 50 BofA aims to clearly spell out credit card terms Employers play Dr. Mom to limit flu impact   Can newspapers get rich by shunning Google? Pay Czar cuts pay of two top BofA executives AT&T, Verizon face off in TV ads Patented seeds lead to antitrust inquiry Canada court rules for Wal-Mart in union case Newsweek: Google-Microsoft battle hurts consumers AIG, ex-CEO Greenberg settle disputes U.S. business Section Front   Add U.S. business headlines to your news reader: