Visa shares jumped as much as 38 percent in the world's largest credit card network's market debut on Wednesday, as eager investors handed some beleaguered U.S. banks a much-needed payday.
On Tuesday, Visa raised $17.9 billion in the largest U.S. initial public offering.
More than half of the proceeds are going to JPMorgan Chase , Bank of America , National City , Citigroup and the other banks that are Visa shareholders.
On Tuesday, San Francisco-based Visa, the world's largest credit card network, sold 406 million class A common stock for $44 per share, above the forecast range of $37 to $42.
Underwriters, led by JP Morgan Chase and Goldman Sachs, have the option to purchase an additional 40.6 million shares to cover overallotments, which could boost proceeds by about $1.8 billion.
The stock opened up 35 percent at $59.50 before rising as high as $60.60. In the early afternoon, they were still up 32.1 percent, at $58.13 in busy trading.
"We've been working on this for over two years, and the momentum brought us to today," Joseph Saunders, VISA chairman and CEO, said on CNBC prior to the stock's opening. "We thought our business was strong, we thought the offering would be strong. I think we're pretty happy with where we ended up."
But some analysts wondered whether all the public euphoria might overinflate the stocks' price, particularly in a climate that has proven difficult for financial services companies.
"Strictly from the sentiment standpoint, I'm not sold on it," said Todd Salamone, of Schaeffer Investment Research. "Everything I'm reading is optimistic. I think that could create some vulnerability down the road because everybody's going to fall all over themselves to get a piece of this."
Salamone compared the situation to Google , which faced strong pessimism from the market when it broke out its IPO. That negative sentiment eventually subsided and the stock began a stunning rally that has seen an increase as much as seven-fold, though it has dropped 42 percent in the past year. He said the opposite scenario could play out for Visa.
"There are two ways we would go with this stock," said David Menlow, IPOFinancial.com president. "You buy it when it goes down and you buy it when it goes up, because they are the biggest and the best at what they do. They overshadow what happens with MasterCard. I think they're 68 percent larger in the total dollar volume that they do, and about 88 percent larger in transactions. Their growth and expansion plans are really staggering."
The VISA IPO easily surpasses the $10.6 billion offering in 2000 by AT&T Wireless Group. San Francisco-based Visa plans to list on the New York Stock Exchange under the symbol "V."
The timing of Visa's offering is risky, as worries that the U.S. economy might be entering a recession have chilled investor demand for stocks and IPOs. But demand for Visa shares is expected to be strong.
"Visa is large, and has strong global growth potential," said John Augustine, chief investment strategist at Fifth Third Private Bank in Cincinnati. "The downside to the Visa offering may be the timing. Our fear is that as credit deteriorates, consumer spending will go down, and volumes will go down for the card networks. That would hurt revenue and profit."
Investors may hope Visa shares will fare as well as those of smaller rival MasterCard.
MasterCard shares have more than quintupled since that Purchase, New York-based card network went public in a $2.4 billion IPO in May 2006.
The stock has risen by about one-fourth since mid-2007, even as the credit crisis began to widen beyond subprime mortgages. The Standard & Poor's financial index is down about the same amount over that time.
"MasterCard has been an explosive stock, and investors may hope Visa will be the same," said Steve Roukis, a managing director at Matrix Asset Advisors Inc in New York, which invests $1.7 billion.
In the fourth quarter of 2007, Visa posted net income of $424 million on revenue of $1.49 billion, according to the SEC filing. MasterCard posted net income of $304.2 million on revenue of $1.07 billion.
Visa is controlled by about 13,300 member banks and finance companies. Many of these are struggling with mounting credit losses, and some with capital shortfalls.
"There could be added volatility (in Visa shares) if some of the member banks begin to sell their holdings, perhaps to shore up capital," Fifth Third's Augustine said.
Visa intends to set aside $3 billion of net proceeds to cover a wide variety of antitrust and other litigation.
These involve issuers such as American Express and Discover Financial Services, as well as major retailers that have accused card networks of price fixing.
Visa also intends to use $10.2 billion of net proceeds to redeem other shares, and the balance for general corporate purposes. It plans to pay a 10.5 cents per share quarterly dividend, for a dividend yield of about 1 percent.