Visa Inc.’s (V) record-setting $17.86 billion initial public offering (IPO) last month provided a much-needed dose of good news to the economic mire we’re in.

With main indices down significantly since Jan. 1, a slew of companies – including many financial firms – recently (and gladly) offered to share how much they pocketed from their stake in Visa’s IPO:

• Bank of Hawaii Corp. (BOH) said its net income would jump by $7 million to $9 million in the first quarter, much of which will come from a mandatory redemption of its Visa stock, the Star Bulletin reported.

• National City Corp. (NCC) said it would post a $450 million cash gain from selling about one third of its stake in Visa, BusinessWeek reported.

• West Virginia’s City Holding Co. (CHCO) banked $2.3 million from a partial redemption of its Visa holdings.

• Overseas, federally owned Banco de Brasil took in $207 million from selling a portion of its Visa stakes. Its private sector rival Banco Bradesco (BBD) made $201 million from Visa’s IPO. Both figures are before tax, Business News Americas reported.

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• South African bank FirstRand said last week that it received a pre-tax gain of $123 million from its shareholding in Visa, iAfrica reported. Of that, $69 million was from the sale of its Visa’s shares and $54 million is the value of the remaining shares. FirstRand is locked into holding those remaining shares for three years.

• Melbourne-based Australia and New Zealand Banking (ANZBY) reported that it expects to pocket $350 million pre-tax from 50% to 60% of its shares in Visa. Follow Aussie banks National Australia Bank and Westpac are expected to turn a $200 million and $100 million profit, respectively, The Age reported. 

• And in China, China Life Insurance (LFC) sunk $300 million into Visa’s IPO. Assuming it bought its shares at Visa’s opening price of $44 a share, that investment is now worth more than $439.5 million at Friday’s $64.46 closing price. Also, China Investment Corp. – the country’s $200 billion sovereign wealth fund – made an undisclosed investment in Visa’s IPO, Today’s Financial News reported.

"It’s not standard practice to say it, but typically big institutions do if they are part of the IPO process and receive allocation," said Money Morning Investment Director Keith Fitz-Gerald.

Still a Buy?

For its March 19 IPO, Visa’s 406 million shares were originally priced at $44 each – well above the expected price range of $37 to $42 a share. The $17.86 billion proceeds it took in made it the biggest U.S. public offering, shattering the $10.6 billion AT&T Wireless raised in its April 2000 IPO.

Globally, only one deal was larger: The October 2006 IPO of the Industrial & Commercial Bank of China, or ICBC, which raised $19.1 billion – or nearly $22 billion when the over-allotment provisions were fulfilled.

However, $44 was the price underwriters and large-scale investors got in at.

Visa’s shares opened at $59.50 on the New York Stock Exchange (NYX), and traded as high as $65, before closing at $56.50, up $12.50 a share, or 28.41%. The following day, shares jumped another 13.89%.

The initial run-up and continued growth gives the San Francisco-based Visa a market value of more than $52 billion.

And shareholders are still piling on – despite companies publicly declaring they are cashing out – because of Visa’s dominant market position and the growing shift into electronic payments.

"Visa’s CEO has got it together," Fitz-Gerald said. "He’s targeting Chinese growth and that should go right to the bottom line."

As far investing in the company, Fitz-Gerald suggests buying in increments to capture safest gains.

"I wouldn’t jump all in now, but there is long term value."

News and Related Story Links:

• Star Bulletin:
  Bankoh gets boost from Visa IPO

• BusinessWeek:
  National City sees gain with Visa sale

• Associated Press:
  City Holding Gets $2.3M for Visa

• Business News Americas:
  BB receives US$207mn, Bradesco US$201mn before tax from Visa IPO

• iAfrica:
  FirstRand benefits from Visa IPO

• The Age:
  Australian banks could reap $1bn from Visa float

• Today’s Financial News:
  Visa IPO Aftermath: Europe’s in trouble, but China’s buying

• Money Morning:
  After its Record U.S. IPO, Visa’s Shares Post Double-Digit Gains for Second-Straight Day

Just one day after its debut from a record-setting initial public stock offering, demand for newly public Visa Inc. (V) was still so strong that the deal underwriters yesterday spent $1.79 billion to purchase another 40.6 million shares, the operator of the world’s biggest electronic-payments networks announced.

Visa shares soared 28.4% in their IPO debut Wednesday as investors bet that the company’s dominant market position and the growing shift into electronic payments will translate into consistently escalating profits.

The shares jumped another 13.89% yesterday to close at $64.35, up $7.85 each.

One IPO expert says the stock is easily worth $80 a share.

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"I think fair value rests near $80 in the intermediate term. Morningstar thinks $74 is the magic number," says Basenese, editor of The Hot IPO Alert and The Takeover Trader investment newsletters. "Either way, the current price means the stock’s undervalued and represents a solid double-digit opportunity, a rarity in this volatile market."

After Visa’s 406 million shares were priced Tuesday at $44 each – well above the expected price range of $37 to $42 a share – the proceeds of $17.86 billion were already a U.S. record, leapfrogging the $10.6 billion stock offering for AT&T Wireless in April 2000.

Now that the underwriters have exercised their over-allotment rights, the gross proceeds from the IPO jumped to $19.65 billion – making it one of the top global IPOs in history. Only one deal was larger: The October 2006 IPO of the Industrial & Commercial Bank of China, or ICBC, which raised $19.1 billion – or nearly $22 billion when the over-allotment provisions were fulfilled.

Excluding fees and commissions, Visa and its bank owners raised $19.1 billion.

Visa’s shares opened at $59.50 on the New York Stock Exchange (NYX), and traded as high as $65, before closing Wednesday at $56.50, up $12.50 a share, or 28.41%. The run-up gives the San Francisco-based company a market value of nearly $50 billion.

A Unique Allure

It’s Visa’s unique position that makes it such an alluring investment, says Basenese, the newsletter editor. In fact, the Visa deal is one of the better IPOs to come down the pike in some time. For one thing, the company is the market leader, dwarfing its rivals in terms of both transaction volume and total transactions [See accompanying chart], he says.

Chart 1: Visa the Giant

As the largest processor of retail payments the world, Visa Inc. dwarfs its rivals. It accounts for 60% of the debit-card transactions in the U.S. market – a four-to-one advantage over rival MasterCard. As the chart demonstrates, it is also bigger by total transactions and total volume.

Sources: The Hot IPO Trader, Money Morning.

Visa is an electronic payments network that focuses on retail transactions. It actually acts as a facilitator of global commerce, enabling money and information to move among banks, retailers, consumers, businesses and even government entities.

There are three basic points investors need to understand – especially with the chaotic credit markets investors now face, Basenese says:

• Visa is not a credit-card issuer.
• It’s not a lender.
• And it’s not exposed to consumer-credit risk.

The bottom line: Visa is simply a transaction-processing company that collects a fee based on the number and dollar value of the transactions that it processes, he said. In short, this is a financial-services company whose shares investors can snap up with confidence and a feeling of safety, since there aren’t any worries that another credit-crunch-related catastrophe could obliterate its business and send its shares into the ground.

"Visa enjoys one of the widest economic moats that a company can desire," Morningstar analyst Michael Kon wrote in a Wednesday research note.

A Changing World

Investors have been eager to grab shares in Visa’s offering as shares of the much-smaller rival MasterCard Inc. (MA) have more than quadrupled in value since the company went public in May 2006. MasterCard shares have largely been untouched by the stock-market turmoil generated by the ongoing credit crisis and closed yesterday at $220.38, up $11.99 a share, or 5.75%. They are down 3% from their 12-month high of $227.18.

The fervor reflects investors’ view that Visa is in a lucrative position as consumers and businesses alike rely increasingly on its electronic network to make payments instead of using cash and checks. Visa is expected to milk the phenomenon to become an even bigger cash cow than it already is.

Visa generated $5.2 billion in revenue last year as it handled more than 44 billion transactions totaling more than $3.2 trillion. The volume puts Visa far ahead of its main rival MasterCard, whose own shares are up nearly six-fold from their May 2006 IPO price of $39, according to a Forbes.com report.

Making Visa even more alluring to investors: The firm is very well insulated from the credit issues that have scorched the very banks that issue Visa-brand credit cards. The banks – not Visa – carry the consumer debt on their books. Visa generates revenue and profit from transaction fees, which have been advancing steadily for years. In fact, those fees even increased during the last two U.S. downturns – 1991 and 2001.

Indeed, since the last recession, Visa has been able to get consumers to increasingly use its debit and credit cards for the purchase of such staples as gasoline and groceries, and to cover such household budgetary costs as utility bills. The upshot: Visa estimates that about 42% of its transactions fall into the "nondiscretionary" category, way up from the 27% recorded for 2000.

"We operate in a large global market undergoing a significant shift from cash and check to electronic payments, said Visa Chairman and Chief Executive Officer Joseph W. Saunders. "We believe Visa is well positioned to build upon our past success and take advantage of this migration to electronic payments."

Visa listed JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Banc of America Corp. (BAC), Citigroup Inc. (C), HSBC Securities (HBC), Merrill Lynch, Pierce, Fenner & Smith Inc. (MER), UBS AG (UBS), and Wachovia Corp (WB) as joint book-running managers of the record U.S. stock offering.

[Editor's Note: Louis Basenese is the editor of The Hot IPO Alert and The Takeover Trader newsletters, and is a contributing writer to Money Morning. Basenese last wrote about how to profit from the takeover market. To learn more about The Oxford Club and its publications, please click here. Check out Money Morning's full investment research report on Visa's IPO].

News and Related Story Notes:

• Bloomberg News:
  Visa Rises After Record $17.9 Billion U.S. Offering.

• Forbes.com:
  Visa Underwriters Exercise Option.

• Money Morning Special Investment Report:
  Visa’s Record IPO is Shaping Up as One of the Hottest Stock Offerings in Years.

• Money Morning Special Investment Report:
  Visa’s Record IPO Shaping Up as a Profitable Play for Long-Term Investors.

• Thomson Financial News:
  Daily IPO Wrap-Up.

• PRNewswire:
  Statement From Joseph W. Saunders, Chairman and CEO, Visa Inc. Regarding Visa Shares Trading on the New York Stock Exchange.

• Forbes.com:
  Visa Stock Soars in Market Debut.

• Reuters:
  Visa Sells Additional $1.8 Billion of IPO Shares

Visa Inc. (V) shares soared nearly 30% after the company’s record U.S. stock offering yesterday (Wednesday), as investors bet that its dominant market position and the growing shift into electronic payments will translate into consistently escalating profits for the operator of the world’s biggest electronic payments network.

After its 406 million shares were priced at $44 each – well above the expected price range of $37 to $42 a share – the Visa initial public offering (IPO) raised a record $17.86 billion. If an over-allotment provision of 40.6 million shares is utilized, the offering will raise an additional  $1.79 billion – bringing the total proceeds to $19.65 billion.

Not only would that easily leapfrog the largest U.S. IPO to date – the $10.6 billion stock offering for AT&T Wireless, which occurred in April 2000 – it would actually place the Visa deal up close to the biggest global IPO of all time: The October 2006 IPO of the Industrial & Commercial Bank of China, or ICBC, which raised $19.1 billion – or nearly $22 billion when the over-allotment provisions were fulfilled.

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Visa’s shares opened at $59.50 on the New York Stock Exchange (NYX), and traded as high as $65, before closing yesterday at $56.50, up $12.50 a share, or 28.41%. The run-up gives the San Francisco-based company a market value of nearly $50 billion.

But the long-term value is probably much higher, says IPO expert Louis Basenese.

"I think fair value rests near $80 in the intermediate term. Morningstar thinks $74 is the magic number," says Basenese, editor of The Hot IPO Alert and The Takeover Trader investment newsletters. "Either way, the current price means the stock’s undervalued and represents a solid double-digit opportunity, a rarity in this volatile market."

A Unique Allure

It’s Visa’s unique position that makes it such an alluring investment, Basenese says. In fact, the Visa deal is one of the better IPOs to come down the pike in some time. For one thing, the company is the market leader, dwarfing its rivals in terms of both transaction volume and total transactions [See accompanying chart], he says.

Chart 1: Visa the Giant

As the largest processor of retail payments the world, Visa Inc. dwarfs its rivals. It accounts for 60% of the debit-card transactions in the U.S. market – a four-to-one advantage over rival MasterCard. As the chart demonstrates, it is also bigger by total transactions and total volume.

Sources: The Hot IPO Trader, Money Morning.

Visa is an electronic payments network that focuses on retail transactions. It actually acts as a facilitator of global commerce, enabling money and information to move among banks, retailers, consumers, businesses and even government entities.

There are three basic points investors need to understand – especially with the chaotic credit markets investors now face, Basenese says:

• Visa is not a credit-card issuer.
• It’s not a lender.
• And it’s not exposed to consumer-credit risk.

The bottom line: Visa is simply a transaction-processing company that collects a fee based on the number and dollar value of the transactions that it processes, he said. In short, this is a financial-services company whose shares investors can snap up with confidence and a feeling of safety, since there aren’t any worries that another credit-crunch-related catastrophe could obliterate its business and send its shares into the ground.

"Visa enjoys one of the widest economic moats that a company can desire," Morningstar analyst Michael Kon wrote in a Wednesday research note.

A Changing World

Investors have been eager to grab shares in Visa’s offering as shares of the much-smaller rival MasterCard Inc. (MA) have more than quadrupled in value since the company went public in May 2006. MasterCard shares have largely been untouched by the stock-market turmoil generated by the ongoing credit crisis and closed yesterday (Wednesday) at $206.39, down $1.86, or 0.88%. They are down 8% from their 12-month high of $227.18.

The fervor reflects investors’ view that Visa is in a lucrative position as consumers and businesses alike rely increasingly on its electronic network to make payments instead of using cash and checks. Visa is expected to milk the phenomenon to become an even bigger cash cow than it already is.

Visa generated $5.2 billion in revenue last year as it handled more than 44 billion transactions totaling more than $3.2 trillion. The volume puts Visa far ahead of its main rival MasterCard, whose own shares have more than quintupled from their May 2006 IPO price of $39, according to a Forbes.com report.

Making Visa even more alluring to investors: The firm is very well insulated from the credit issues that have scorched the very banks that issue Visa-brand credit cards. The banks – not Visa – carry the consumer debt on their books. Visa generates revenue and profit from transaction fees, which have been advancing steadily for years. In fact, those fees even increased during the last two U.S. downturns – 1991 and 2001.

Indeed, since the last recession, Visa has been able to get consumers to increasingly use its debit and credit cards for the purchase of such staples as gasoline and groceries, and to cover such household budgetary costs as utility bills. The upshot: Visa estimates that about 42% of its transactions fall into the "nondiscretionary" category, way up from the 27% recorded for 2000.

"We operate in a large global market undergoing a significant shift from cash and check to electronic payments, said Visa Chairman and Chief Executive Officer Joseph W. Saunders. "We believe Visa is well positioned to build upon our past success and take advantage of this migration to electronic payments."

Reflecting management’s confidence, Visa anticipates annual earnings growth of at least 20% for each of the next two years – and possibly longer. The company got off to a fast start in the fiscal first quarter that ended in December, reporting a profit of $424 million profit, up 70% from the comparable quarter the year before.

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.

"To sell 400 million shares at a time like this is Herculean," David Menlow, president of IPOfinancial.com, told The Associated Press.

About $10 billion of the IPO proceeds have been earmarked to buy back shares from the banks that helped build up its network over the past 50 years. The biggest chunk – about  $1.25 billion – will be paid to its largest customer and shareholder, JPMorgan Chase & Co. (JPM).

For banks, this payoff couldn’t come at a better time. Worldwide, financial institutions have recorded losses and taken write-downs totaling nearly $200 billion as a result of the worst global financial crisis since the Great Depression.

According to filings related to the stock offering, another $3 billion from the IPO is being deposited into an escrow account to cover potential liabilities in lawsuits that have been alleging that Visa conspired to fix prices and stifle competitors’ efforts. Analysts say that those legal issues are one of the few clouds hanging over Visa’s stock, although the company’s leaders contend that the escrow account and other contingency measures should protect investors.

Visa paid more than $2 billion late last year to resolve a suit with American Express Co. (AXP), but a similar case brought by Discover Financial Services LLC (DFS) is set to go to trial in New York on Sept. 9.

Visa listed JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Banc of America Corp. (BAC), Citigroup Inc. (C), HSBC Securities (HBC), Merrill Lynch, Pierce, Fenner & Smith Inc. (MER), UBS AG (UBS), and Wachovia Corp (WB) as joint book-running managers of the record U.S. stock offering.

[Editor's Note: Louis Basenese is the editor of The Hot IPO Alert and The Takeover Trader newsletters, and is a contributing writer to Money Morning. Basenese last wrote about how to profit from the takeover market. To learn more about The Oxford Club and its publications, please click here. Check out Money Morning's full investment research report on Visa's IPO].

News and Related Story Notes:

• Bloomberg News:
  Visa Rises After Record $17.9 Billion U.S. Offering.

• Money Morning Special Investment Report:
  Visa’s Record IPO is Shaping Up as One of the Hottest Stock Offerings in Years.

• Money Morning Special Investment Report:
  Visa’s Record IPO Shaping Up as a Profitable Play for Long-Term Investors.

• Thomson Financial News:
  Daily IPO Wrap-Up.

• PRNewswire:
  Statement From Joseph W. Saunders, Chairman and CEO, Visa Inc. Regarding Visa Shares Trading on the New York Stock Exchange.

• Forbes.com:
  Visa Stock Soars in Market Debut.