It was with a sigh of relief that I read that Visa went through with its record-breaking IPO and started trading on the New York Stock Exchange today. Not because I have any money at stake, but because the column I wrote a couple of weeks ago would have looked pretty silly if the IPO hadn’t happened. An excerpt:
Giant IPOS are usually a sign of good, or at least frothy, times. The current record haul for a U.S. IPO, $10.6 billion, was reaped by AT&T Wireless in April 2000–just after the great tech-stock bubble began to deflate but before anybody realized it. (The world-record holder is and apparently will remain the Industrial & Commercial Bank of China, which raised $21.6 billion in an IPO in 2006.)
What gives with Visa? One possibility is that the company and its investment bankers are deluded and the IPO will crash and burn–but the current thinking on the Street is that it won’t have trouble finding buyers. Another is that the financial types who’ve been crying crisis have been crying wolf. But the housing market is in its worst slump since the Depression. Some debt markets have completely stopped functioning. The overindebted American consumer is showing signs of great stress.
So there must be other explanations for why the company that is perhaps the greatest enabler of American (and, increasingly, global) consumption, born in 1958 as BankAmericard and rechristened Visa in 1976, has chosen now of all times to go public. One is that Visa makes its money (a $424 million profit in the last quarter of 2007, up 70% from a year earlier) from transaction fees, not lending, so it doesn’t have to worry nearly as much as banks do about people making their credit-card payments. Another is that the banks that own Visa stand to make more than $10 billion from the IPO–JPMorgan Chase alone should clear $1 billion–and they need the money.
The main reason Visa can contemplate an IPO now is that, for all the troubles, large parts of the global financial system continue to function just fine. If you have bad credit and want a mortgage or you run a private-equity firm and want to finance a $15 billion takeover, forget it. But if your credit’s O.K. and you want to charge a trip to Hawaii or you’re the profitable, growing leader of the global electronic-payments business and you want to raise $15-plus billion, go for it!
In the column, I gave credit to Ben Bernanke and the activist Fed. That certainly holds true this week.
Update: More on the subject from Time‘s Anita Hamilton.