SAN FRANCISCO – Hundreds of credit unions received a double bonus last week with cash payments for some of their Visa stock from last month’s initial public offering, which also allowed them to eliminate an expense they accounted for in the fourth quarter.
Credit union and bank recipients of Visa shares were required to take the fourth quarter expense because an undetermined portion of their shares will be used by the cards giant to create a reserve fund for litigation settlements, according to Scott Waite, the chief financial officer for Patelco CU. Patelco recorded a $1.5 million fourth-quarter charge related to the IPO. “The payment lets us reverse that charge,” Waite told The Credit Union Journal.
The fourth quarter charge was especially grievous for credit unions because it was decided on by accounting rules makers just before the end of the quarter, according to Waite, who serves as an advisor to the Financial Accounting Standards Board.
The hit to earnings by the Visa accounting came in the final days of 2007, as credit unions were closing their books on the year. “Within days of the end of the fourth quarter, credit unions found out they were on the hook for that expense,” said Waite, whose credit union received a $2.5 million payment by Visa for its shares.
Credit union and bank Visa-issuers that held their own Bank Identification Numbers were paid non-public Class B shares as part of the IPO. The Class B shares eventually are convertible into Class A shares at a rate of 0.72 Class A share for every Class B share. Visa immediately redeemed 39% of those shares at $42.77 each (the same amount at which the Class A shares went public).
The remaining Class A shares allotted to each credit union and bank currently are being held by Visa, which won’t say when it will turn them over. The terms of the IPO require credit unions and banks to hold their shares for at least three years. But MasterCard has the same three-year mandatory hold requirement and ended up buying back some of the shares before the three-year period expired.
The Visa shares are expected to be very lucrative, as were the shares of MasterCard, which have risen more than five-fold since their introduction in May 2006 – rising from $39 to more than $230.
