Shares of First USA Inc., a major bank credit card issuer, have gained 26% since their debut on the New York Stock Exchange six weeks ago.
Bankers and Wall Street have monitored First USA's progress for clues as to how investors might greet new shares of banking subsidiaries, particularly those in the mortgage banking business.
In fact, First USA, based in Dallas, is among the few recent initial public offerings to fare reasonably well in aftermarket trading. It was unchanged at $12 a share on Wednesday, versus its debut price of $9.50.
Price Cut Way to Market
The rise is due in part to price cutting before the IPO reached the market. The company planned earlier in the year to offer six million shares between $16 and $18 but encountered resistance and ended up with an offering of 4.5 million shares.
"They could have come in at $11 and not been overpriced if you look at the earnings prospects," said Frank W. Anderson, a bank analyst at Stephens Inc., Little Rock, Ark.
"The earnings are expected to benefit from an attractive combination of rapid card revenue growth and balance sheet deleveraging," Mark Alpert and Mark Lynch of Bear, Stearns & Co. said in a report. Bear, Stearns co-managed the offering.
Big Issuer of Gold Cards
First USA is the nation's 14th-largest MasterCard and Visa issuer via its Delaware subsidiary, First USA Bank. It is a major issuer of gold cards featuring no annual fees and low finance charges, a fast-growing segment of the credit card business.
The company has also drawn attention because it was the object of a 1989 leveraged buyout and is the first financial firm with this background to sell shares to the public. The offering raised $41.2 million, mostly used "to accelerate the process of deleveraging," according to the prospectus.
First USA was formed in 1985 when MCorp, Dallas, sold its credit card operations to Lomas Financial Corp., Dallas. In the 1989 buyout, First USA was bought by its management and Merrill Lynch Capital Partners.
The 4.5 million shares sold are a minority interest accounting for 20% of the shares outstanding. Merrill Lynch still holds 51% and management 10%. The rest was retained by debtholders.
First USA is among three independent bank card issuers that have gone public. The others are Advanta Corp., Horsham, Pa., and MBNA Corp., which was spun off by MNC Financial Inc., Baltimore, in 1989.
Several banks have filed with the Securities and Exchange Commission to sell minority stakes in their mortgage banking subsidiaries. They are Bank of New York Co., Fleet Financial Group Inc., and Imperial Bancorp.
But price declines following some offerings have left investors cautious. For instance, Margaretten Financial Corp., a mortgage banking firm based in Perth Amboy, N.J., debuted in January at $20 and traded Wednesday at $15.625. It has fallen as low as $11.625.
Most bank stocks, along with the broader market, moved down on Wednesday as investors worried anew about the strength and direction of the economy.
The most active banking issues were Bank America Corp., San Francisco, down $1.50 to $41.25 on volume over 1.6 million, and MNC Financial Inc., Baltimore, down 87.5 cents to $11.125 on volume of more than 1.4 million shares.