Sunday, March 23, 2008

JPMorgan Chase makes $1B-plus on Visa IPO

Thanks to its stake in Visa's initial public offering this week, JPMorgan Chase & Co. has enough money to pay for its Bear Stearns purchase and still have about a billion dollars left over.

JPMorgan (JPM, Fortune 500) made at least $1.36 billion in Visa (V)'s IPO Wednesday, according to federal filings. JPMorgan is the largest of six principal bank stockholders of the the card processor, who all reaped big bucks from the offering. The debut was so successful that Visa sold additional shares, boosting the banks' takes.

"JPMorgan had a great week," said John Fitzgibbon Jr., founder of, an independent IPO rating service. "They walked away with $1 billion in their pocket and that's after buying Bear Stearns."

JPMorgan scooped up embattled Bear Stearns for the bargain basement sum of $342.6 million, based on the bank's closing share price on Thursday.

The Visa windfall couldn't come at a better time for banks, which are struggling to raise much needed funds amid a credit crunch on Wall Street and a faltering economy. It will help boost banks' first-quarter earnings, provide them more reserves for loan losses and improve their capital, an important measure of an institution's financial health.

"It's hard to raise that kind of cash in today's market," said Chip MacDonald, partner in the capital markets group of Jones Day law firm. "It gives them more flexibility."

The IPO should increase banks' first-quarter earnings by about $5.4 billion, Keith Horowitz, analyst at Citi Investment Research, wrote in a research note, according to the Associated Press.

Other banks receiving big windfalls from the IPO include: Bank of America Corp. (BAC, Fortune 500), $675.3 million; Citigroup Inc. (C, Fortune 500), $324 million; U.S. Bancorp (USB, Fortune 500), $298.7 million, and Wells Fargo & Co. (WFC, Fortune 500), $295 million, according to the IPO prospectus filed with the SEC.

National City Corp., which was listed in the prospectus as getting $470.5 million, announced Thursday that it would see a gain of $530 million from redeeming 39% of its stake.

The banks still hold a significant stake in the card processor. Based on Thursday's closing price of $64.35 per share, their ownership was worth $4 billion for JPMorgan, $2 billion for Bank of America, $1.4 billion for National City, $952 million for Citigroup, $878 million for U.S. Bancorp and $866 million for Wells Fargo.

Before its $19.1 billion IPO, which was the world's second largest, Visa was an association owned by its 16,600 member banks. The largest IPO was Industrial & Commercial Bank of China, which raised $21.9 billion in October 2006.

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