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No. of Recommendations: 3
I think I'll be getting in early on this one, even right after the IPO. What do you guys think?

There's an interesting sidenote to the Visa IPO. Most of the current owners are banks and financial institutions, which as we all know have had a horrendous time of late. These Visa owners have also had to set aside funds to cover potential losses from an anti-trust suit against Visa. For example, National City has set aside $292M to cover its prorated portion of the potential damages. But it is estimated that proceeds from the IPO could be around $880M according to some analysts (http://tinyurl.com/36c22e), which more than covers what to date have been non-cash charges.

While Nat City has already taken a charge to cover those lawsuits, this bit from Nat City's 10k seems to indicate that Visa is also setting aside cash for those same lawsuits. So not only would Nat City get the IPO cash, but it appears they will also be let off the hook on the settlement charges. From the 10k:

If the Visa initial public offering is successfully completed, the Corporation is expected to receive cash in partial redemption of its equity interest currently carried at zero value. Further, management expects that the indemnification obligation to Visa will be reduced when Visa either disburses funds for negotiated settlements, or funds an escrow account designated for settlement of covered litigation. Management expects that the gain to be realized from redemption of Visa shares will more than exceed the indemnification obligations recorded to date.

Somebody correct me if I'm wrong, but Nat City is assigning no value to Visa shares that could be worth $880M, plus they look to reverse a $292M non-cash charge. In any event, the Visa owners are poised to make out quite nicely from the IPO.

Now there is debate as to whether the Visa IPO is already baked into the member banks share prices, but I was talking to a friend of mine who works for another such bank and he feels the market is not fully appreciating the full impact of the IPO. He further stated that right now, banks are throwing every bit of bad news they can into the hopper, figuring the market hates banks anyway, so they may as well air out all the dirty laundry now. Keep in mind that this is just mid-level corporate scuttlebutt, but it indicates that once the bad news stops, there could be smooth sailing thereafter. The IPO could provide the initial tailwind.

Other major Visa shareholders include Bank Of America (BAC), Wells Fargo (WFC), JP Morgan (JPM) and Wachovia (WB). I have not read through their SEC filings to see if they read the same as National City, but I think it's something to look at if one is interested in the Visa IPO.

Paul
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