KBW Talks Mobile Payments Leader Visa’s Recent Account Move

September 30, 2019         By: Steven Anderson

Sometimes corporate moves don’t make sense on the surface. Sometimes the moves can be very strange indeed, making little sense at first blush. However, closer examination can sometimes tip the scales from nonsense into rationality, and a new report sent our way from Keefe, Bruyette & Woods (KBW) represents one such shift pointed at Visa. 

The issue in question featured Visa dropping $300 million into its escrow litigation account, a point that raised a few eyebrows. The $300 million in question came from “the dilution of Class B shares”, which are commonly shares owned by US banks and related entities. This in turn reduces the conversion ratio to that seen with Class A shares, and ultimately means the same thing as a share repurchase when viewed from an earnings per share (EPS) perspective.

Based on a recent closing price of $176 per share, the move is roughly equivalent to repurchasing roughly 1.7 million Class A shares. Naturally this is just an estimate, as share prices will fluctuate during any particular day. However, given that Visa had space for $6.2 billion worth of repurchase authorization, and KBW expects $2 billion in repurchase operations to take place in the fourth quarter, the end result might be comparatively minimal. KBW analysts note that the move could be related to individual settlements for opt-out merchants, especially given that a recent large class-action suit has already been settled. 

KBW isn’t exactly going out on a limb here; Visa is expecting what amounts to a five percent uptick in its buyback operations, and it’s scarcely burned through its already-planned buyback figures. It’s still got cash enough to stage a buyback later in the year, and it likely will do so. Impact to EPS here should be light, if even noticed at all.

If Visa hadn’t already built in some cushion in its buyback estimates—you never know when you’ll need a little extra liquidity—that would be an even bigger shock than the $300 million planned. Plus, since Visa will be keeping that cash in house as part of its litigation accounts, the overall impact should be minimal. Still, it was a point to watch, as is pretty much any move on the part of one of the biggest mobile payments firms around.