If you thought the thousands of member banks failed miserably in how they extended billions in risky housing loans, that could end up being an understatement on the leadership in their executive suites.
Take a look at the banks plan to partly bail out from their Visa investment by using the expected IPO in an attempt to distance themselves from the merchant interchange litigation. Should the Visa IPO occur this month as planned, and we still think it might not – or be delayed due to market conditions and other factors – the real fiscal liability is fully understated.
Visa’s SEC filing explains that they plan to set aside $3.0 billion for its legal liability, but you would think that the real hit to the banks’ would be far greater.
Here is why:
In our opinion, any merchant interchange settlement would include removing or substantially reducing their current $40 billion annual hidden tax on retailers and consumers. Market analysts and several financial reporters have been explaining that the Visa Inc. IPO investment is solid if the legal liability is diminished. However, they all fail to equally assess the impact on the credit card association’s banking cartel to adjust for a diminished source of income from their anti-competitive and price-fixing interchange scheme.
Excerpts from Investor’s Business Daily [click here to read Nov. 20th IBD article]
- …”IPO Desktop’s Francis Gaskins warns not to expect MasterCard redux. Visa must go public by contract to its shareholders, partly to pay for litigation it’s involved in. That means that the yet-to-be-named price may reflect more desire for quick cash than for a good aftermarket.”
- “Like the rest of the credit-card industry, Visa has been in the middle of a legal controversy over interchange fees. Several countries are taking regulatory action, and some 50 class-action lawsuits are in the works over the issue. The battle is leeching money from Visa, and could result in damages.”
- “Only four banks account for 23% of Visa’s revenue, with JPMorgan providing 10% by itself. A disruption in any of these relationships would hurt the company.”
- “It will reserve an unspecified amount of this for litigation, some for redeeming preferred stock and the rest for general corporate purposes.”
[Source, via Investor’s Business Daily]