Visa, It’s Everywhere You Want to Be

February 25, 2008

Today, Visa revealed terms for an impending IPO, first announced last November in a registration statement filed with the SEC. Visa is the largest credit card company in the US and operates the world’s largest retail electronic payments network.

Visa’s IPO Terms

Visa plans to offer 406 million shares for $37-$42, and will trade on the New York Stock Exchange under the symbol “V” [1]. While an official IPO date has not been announced, IPO researchers expect trading to begin on March 20.

The IPO Market

The number of US IPOs priced this year has declined 49% from the number priced at this time a year ago [2], a possible sign that companies expect capital is no longer as freeflowing as before.

Last year’s largest deals were issued by financial firms including Blackstone Group (BX), Interactive Brokers (IBKR), and Och-Ziff (OZM) Capital Management. Demand was strong at first, but after the initial IPO “pop”, the majority of the financial companies ended up with negative returns by the end of the year.

MasterCard (MA) had its IPO back in May 2006, and has had a 400% return since then. MasterCard had a nearly 100% return in the past year. It has consistently beat earnings estimates since IPO and is expected to continue outperforming the business services industry. This has been possible in the terrible credit market because MasterCard provides credit card services and is not an actual credit lender.

Visa, the company

Visa, like MasterCard, derives its revenue from providing processing services to merchants and banks. By using bank issues, Visa does not profit from the interest paid by cardholders, but this also isolates it from debt defaults. Thus, the revenues of card service providers depend largely on consumer spending.

Visa did indeed see a 33% rise in revenue in 2007, although it recorded a loss due to litigation settlements with American Express and Discover.

Life Takes Visa

It seems inopportune for Visa to be offering an IPO at a time when consumer credit is rapidly crunching. What’s the hurry?

It’s likely that the banks invested in Visa are looking for a big pile of cash to help ease the credit crisis. If Visa does indeed raise the $17 billion it is hoping for, this would be good news for underwriters JPMorgan Chase (JPM) and Goldman Sachs (GS). Citigroup (C) and Bank of America (BAC) are also shareholders.

Visa may also be pushing for an IPO to cover litigation costs after a number of recent lawsuits.

I expect that Visa will underestimate their initial pricing to gain investors’ confidence given uncertain times. And, even though consumers will be cutting back on unnecessary spending, they will probably increase their use of credit cards for the essentials. Visa is also the official sponsor of the 2008 Olympic Games. Paired with this visibility, Visa may be in for a good run-up.

1. Visa SEC filing
2. Renaissance Capital IPO Research


Basics: Certificates of Deposit (CDs)

November 3, 2007

The Certificate of Deposit (CD) is the most basic and mundane investment vehicle offered by banking institutions. If you agree to hand over your money to the bank for a specific period of time they will reward you with a higher interest rate than your savings account. In a regular savings account the bank has no guarantee that you won’t just withdraw all the money the next day. As an example, Citibank (C) currently offers 0.7% APY for day-to-day savings account and 5% APY for a 6-month CD.

Term Structure

Term APY
3 month 3.75%
6 month 5.00%
9 month 4.5%
1 year 4.20%
2 year 4.00%
3 year 4.00%
4 year 4.00%
5year 4.25%

The amount of interest on your deposit depends on how long you hand over your money to the bank. The general trend is that the interest is higher the longer you keep your money in the bank. This is because the bank can do more with your money during a longer period of time; like investing it or loaning it out to people. In this example, the rate goes down after 6 months because the bank expects the Federal Reserve to lower interest rates in the future. If the bank can get cheaper money in the future, then it is unlikely to give you a better interest rate for longer-term CDs.


People often ladder CDs to lower the commitment of their funds. Laddering eases the commitment by having multiple CDs mature at different times. Each time a CD matures it is like a rung on the ladder. If I had $10k in a one year CD, my money would be locked up for a year. If I put $2.5k in a one year CD in January, April, July, and October I would have $10k in CDs for a 1 year term, but every 3 months I can take $2.5k out and spend it as I wish or reinvest it. This keeps your money from being locked up.


  • Higher returns than savings accounts
  • Guaranteed return for a period of time
  • FDIC insured up to $100,000
  • Easy to transfer money from existing savings/checking at the same bank


  • Returns typically lower than stocks and bonds
  • Penalties for early withdrawal of funds from a CD.
  • Some banks require high minimum balance


Online banks offer savings account with interest rates close to CDs, such as 4.5% on HSBCDirect (HBC). While investing in a S&P500 index fund will most likely yield 10% over the long run, CDs still have their place if you plan to use that money in a year but don’t want as much risk. If you’re planning to buy a car in a year, then a CD is a good place to put your money.

Keep Money in the Banks

August 17, 2007

The stock market lately has been rocky and extremely volatile. A lot of investors are panicking and realizing that the market cannot continue an upward trend forever. In the last month, investors have experienced a 10% correction in the Dow Jones from a July 19th high of 14,000 to the current value of 12,845.78. Today, the Dow Jones spiked down more than 300-points midday, only to close down about 15 points. Worries about the subprime mortgage’s economic effect, Countrywide Financial’s (CFC) credit crunch, and a slowdown of consumer spending have affected the mind set of those on Wall Street.

For those investors that can’t handle the financial roller coaster ride with plenty of bumps, the best thing to do would be to put your money in the bank and collect some interest. On the other hand, I believe that instead of putting your money into an actual bank down the street from wherever you live, invest it in bank stocks. Some bank stocks that pay handsome dividends include Bank of America (BAC) at 5.14%, Citigroup (C) at 4.54%, Wachovia (WB) at 4.69%, JP Morgan (JPM) at 3.34%, and Wells Fargo (WFC) @ 3.50%. On top of their dividends, a few of these stocks are at the lower end of their 52 week range. I personally own Wachovia and am a big fan of both Wachovia and Bank of America. These are stable companies that will pay off a dividend, will not fluctuate as much as other sectors, and may be able to weather another 5-10% downward correction in the market. If the economy/market turns sour sooner than later, you may likely see the Fed take decisive action and trim interest rates which will be a big boost for the banking sector.

Don’t be surprised with another 600-800 point drop in the market, but these bank stocks would be a good outlet to invest your money until you see more attractive prices in the market later this year.