OLYMPIA, Wash. – State regulators yesterday cleared credit unions to convert their non-marketable Class A shares in MasterCard Inc. to the hot Class B shares, which may be sold on the open market.
The cards giant is requiring all of its financial institution shareholders, who received Class B shares in its May 2006 initial public offering, to convert the stock to Class A shares.
MasterCard shares have been among the hottest in the market, confounding the market’s overall malaise and continuing to rise, closing up 3% yesterday to a new high of $215.46. The shares have risen more than 500% since their debut at $39 less than two years ago.
In a new legal opinion, the Washington Department of Financial Institutions said credit unions may continue to hold the hot stock, in contravention of state prohibition of credit unions owning equity, because the shares were obtained in an unusual circumstance, the 2006 MasterCard IPO. But state chartered credit unions may not buy or sell additional MasterCard shares on the market. In addition, examiners may require a credit union to divest the shares if it decides that holding the stock is not safe and sound.
"Although state law generally prohibits credit unions from investment in common stock, in this situation the investment appears to be the indirect and unsolicited result of a contractual relationship between individual credit unions and MasterCard," wrote Linda Jekel, director of the DFI’s division of credit unions. "In this sense, ownership of shares was not sought by credit unions for "investment" purposes but, rather, was incidental to the normal course of credit union business."
The stance is similar to one set out last month regarding credit unions’ holdings in Visa Inc., which is delivering shares to credit unions in preparation for its own IPO. Credit unions are reaping millions of dollars worth of shares in Visa, which is expected to be one of the hottest IPOs of 2008.
