Prognosis for Visa's coming IPO

Implications: Investors, including bankcard issuers, want the Visa IPO to be at least as successful as MasterCard's in '06. Visa's global legal problems, which are especially acute in the US and EU, could burden Visa far into the future. The US credit crunch could hold surprises for Visa, more so if Democrats win the White House in November.

Analysis:  The judge in the interchange cases in a Brooklyn federal court recently received a recommendation from a Magistrate he appointed to advise him on the legality of MasterCard's IPO in '06.  The recommendation in effect was to declare it illegal.  Of course, the judge might ignore the recommendation, but the odds are more the other way.  If so, the consequences for MasterCard's and Visa's IPOs could be dire.  It will almost certainly provoke a similar action by the merchants against its coming IPO.  Were the recommendation to hold against both networks, investors would suffer and MasterCard's and Visa's interchange exposure would not be capped as of their respective IPO dates, but would continue through a judgment by the jury in Brooklyn, probably some time in '09.  Arguably that means at least five years of interchange revenues could be at risk to the punishments of the Sherman and Clayton Acts.  As a practical matter, these risks should accelerate the settlement tactics of the defendants.  There are many and they could change the tide in their favor.