SAN FRANCISCO — Although much remains uncertain about the deal, which is subject to the vagaries of financial markets and legal settlements, credit unions that issue Visa cards stand to gain a possibly substantial financial windfall from Visa Inc's initial public offering of stock expected later this year.
The major card brand's IPO is the final step in its transformation from an association of financial institutions that issue Visa cards to an incorporated company able to raise money in the financial markets. As part of that move, the brand will issue stock to its financial institution issuers that could be worth tens of millions of dollars on the open market. But it will also use some of the stock, including stock from issuers, to settle long-standing legal claims from American Express and other organizations over the association's previous acceptance policies.
"It is a little bit like giving with one hand and taking back with the other," explained Steve Salzer, general counsel with PSCU Financial Services, the card and payment CUSO with more than 500 credit union members, most of whom process card transactions on First Data Corp's card platform. "But the end result should be additional assets on the bottom lines of credit unions around the country that issue Visa–we just don't know how big an asset or definitely what it will be worth."
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Since it issues cards on behalf of some of its member CUs, the so-called associate members of the CUSO, PSCU has been told that it will receive something on the order of one million shares of Visa stock on behalf of those member CUs. Other PSCU members credit unions issue cards under their own accounts with the card brand and thus will receive stock directly.
Card Services for Credit Unions, the association of credit unions that process their card transactions on the Fidelity National Information Services' card platform, has a similar relationship with many of its member CUs, but since CSCU CEO Robert Hackney is a former board member with Visa, the organization has kept entirely quiet about the IPO or how much stock its member organizations might receive.
"As a former Visa board member, on the advice of counsel, I just can't talk at all about the IPO," explained Hackney.
Salzer, along with PSCU Accounting Director Stuart Mellish, explained that the exact amount of the stock that it and its member CUs will receive, as well as how the CUSO will distribute and on what schedule, have yet to be determined, in part because the IPO has not dropped yet. Until that happens, it's hard to tell how much of the stock credit unions will net after Visa takes some of it to settle the legal claims.
In accordance with Security and Exchange Commission regulations, the card brand has remained entirely silent on the IPO. Analysts have also declined to comment on record, though several have noted, on background, that the current market conditions do not favor any IPOs, particularly not any from what is a still a primarily financial stock.
According to the settlement made with American Express, proceeds from the IPO will go to settle the brand's legal claims against Visa, some of those coming from credit unions and other issuers out of their stock issuance. If the IPO drops very successfully, the number of shares that will be needed to satisfy those claims may be less than if it does not and that will directly affect the number of shares that credit unions wind up keeping.
Another twist to the Visa stock tale is the delay between when CUs actually receive their stock and when they can really add it to their books as an asset. According to rules of the IPO and the settlement, financial institutions that receive the stock cannot sell any of it until the card brand finally settles all the legal claims, a process which could take years. And under accounting rules, the CUs cannot add their value to the bottom lines until they are sold, making them an asset which CUs may have but not really have at the same time, the PSCU executives explained.
Still, once the all the details are settled, credit unions that did not sell their card portfolios stand to reap a pretty good reward in the stock offering. Using a low average stock price from MasterCard's stock offering as a reference price, a billion dollar plus CU estimated it could eventually add $29 million to its bottom line from the deal.
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