Saturday, August 30, 2008

Hidden Bank Assets

I came across an article last week talking about banks with some hidden assets. When Visa went public, the banks that owned the network were given shares of the Visa IPO. The reason the stock does not show on bank balance sheets is because the stock can't be sold until 3 years after the IPO. So most of the banks that hold this asset have it listed as a zero balance.

Here are the highlights from the Bloomberg article. Hidden Visa Stake

National City Corp., the Ohio bank whose market value fell 70 percent this year on investor concern that capital may run short, has a $1 billion stake in Visa Inc. that doesn't get counted on its balance sheet.

National City gained $532 million by selling Visa stock when the credit-card company went public in March and still holds 19.7 million Class B shares, according to an August filing by Cleveland-based National City. The stake is probably worth about $1 billion and is carried at zero because sales are restricted, Treasurer Thomas Richlovsky said.

``There's value there that's not being reflected,'' said Charles Mulford, an accounting professor and director of Georgia Institute of Technology's Financial Reporting and Analysis Lab. The bank's stake in San Francisco-based Visa, the world's biggest card network, is ``certainly worth more than zero,'' and National City could sidestep the sale restrictions by using the shares as collateral to obtain financing, he said.

National City owns Class B Visa shares, each currently equal to 71 percent of Class A
shares, which closed at $74.38 on the New York Stock Exchange. The unlisted Class B shares are held by about 1,790 ``member'' banks that owned Visa before it became public, according to Visa's regulatory filings.

The banks must hold Class B shares for three years from the IPO or until settlement of remaining Visa litigation in which the banks may be liable, whichever is longer.

Exceptions include sales to another Class B holder, Visa's filing said. BB&T Corp., North Carolina's third-largest bank, posted a $47 million second-quarter pretax gain from selling Class B shares to an unnamed member bank, Chief Executive Officer John Allison said in a July conference call.

Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and U.S. Bancorp are among banks that may have held Class B shares after the IPO. Wells Fargo spokeswoman Julia Tunis Bernard said the lender carries Visa shares at a ``nominal amount.'' The San Francisco-based bank said in a first-quarter filing it gained $334 million from the IPO by redeeming 39 percent of its stake.

Bank of America's Scott Silvestri and Citigroup's Shannon Bell declined to comment. JPMorgan's Tanya Madison said the bank holds Class B shares and wouldn't elaborate.

U.S. Bancorp's Steve Dale said the lender holds a Visa stake ``at a zero-cost basis.'' The bank's quarterly filing didn't say how many shares are still held.
Disclosure: The Div Guy owns shares of BAC and USB at the time of this post.

This article was written by The Div Guy. You may email questions or comments to me at thedivguy@gmail.com.

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