Credit card goliath Visa Inc. said Monday that it planned to raise as much as $18.8 billion in what would be the largest initial public offering in U.S. history.
The timing surprised analysts because the credit crunch and a possible recession could slow consumer spending and eat into the company's profit.
One reason the company may be going ahead with the IPO now is that it would bolster the balance sheets of the large banks that own sizable stakes in Visa and are reeling from tens of billions of dollars in mortgage-related losses.
"These banks need more capital in view of what's happened to them in the debt meltdown," said Francis Gaskins, editor of IPOdesktop.com in Marina del Rey. "They want to get [the IPO] out of the way and done before something else happens down the road."
San Francisco-based Visa said it would sell as many as 446.6 million shares at $37 to $42 a share, far surpassing the $10.6-billion debut of AT&T;'s wireless unit in April 2000.
But demand for the shares could be held down by signs that Americans, many of whom are no longer able to tap the equity in their homes to finance routine purchases, are reining in their spending.
"Card companies are going to be hard-pressed to make the levels of profit they had before," said William McCracken, chief executive of Synergistics Research Corp., an Atlanta-based financial services research firm.
However, Visa and its chief rival, MasterCard Inc., are benefiting from a trend in which people are increasingly paying for purchases with debit cards rather than with cash or checks, McCracken said.
And Visa may be trying to emulate the success of Purchase, N.Y.-based MasterCard, whose shares have surged fivefold since it went public less than two years ago.
"I'm sure that has something to do with it," said Sal Morreale, an institutional salesman at Cantor Fitzgerald who tracks IPOs.
Visa doesn't actually issue its ubiquitous namesake cards. That is done by the partner financial institutions. Visa coordinates processing and services and receives a portion of the transaction fees that merchants pay every time customers shop with Visa cards.
Until reorganizing itself in preparation for its IPO, Visa operated as an association of banks. It was founded in 1958 by Bank of America as BankAmericard. The name was later changed at the behest of other banks in the association.
Based on the $42-a-share offering price at the top of the range projected by Visa, the company would sell $18.8 billion in common stock. But including nonvoting shares that would be retained by member banks and others, it would have a total stock value of $37.4 billion.
In a Securities and Exchange Commission filing, Visa said it planned to use some of the IPO proceeds to buy back $10.2 billion of the nonvoting shares, including 31% each of stakes held by JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc. and other U.S. banks.
In addition to generating that cash for the banks, the IPO could increase the value of the remaining Visa stakes on their balance sheets. That would ease their need for capital to make up for mortgage losses.
It's doubtful, however, that Visa's IPO can do anything to revive the moribund IPO market, which has been a casualty of the broad slump in the stock and bond markets.
There have been only 18 U.S. IPOs so far this year, raising $4 billion, according to research firm Dealogic. That compares with 40 deals raising $8.1 billion in the same period last year.
Depending on the number of shares sold and the price, Visa's could be the second-largest IPO ever worldwide, according to data from Dealogic.
Visa's stock would trade on the New York Stock Exchange under the symbol "V."