Banks’ jackpot from Visa deal

BRITAIN’S biggest banks are set to receive multi-millionpound windfalls from the £15bn sale of the European arm of Visa.

Barclays, Lloyds, RBS and HSBC could together net well over £1bn from the sale, while newly listed technology giant Worldpay is expected to receive up to £900m.

Barclays could eventually even receive more than £1bn from the deal because it handles about 10pc of Visa Europe’s payments – the largest volume of all the banks.

New York-listed Visa Inc is buying Visa Europe as it expands to compete with rivals including MasterCard. Visa Europe is owned by a co- operative of European banks with more than 500m cards.

The deal will see Barclays receive more than £400m initially, while Lloyds will get £300m, RBS £200m and HSBC £150m.

Although the deal is a bonanza for banks across Europe there are concerns it will mean extra costs in the long term.

Visa Europe currently charges the banks – its current owners – less than MasterCard, and analysts expect this to change.

Bernstein analyst Chirantan Barua warned Visa may try to raise its fees at the expense of the banks, which could eventually pass these new costs on to customers.

‘Although we see this as a positive in the short term for the UK banks, as this represents a boost to capital, we do not see this as a free lunch,’ he said. ‘Now that the banks will be “external” to the payment system they will see their fee income margin start to be squeezed and we wouldn’t be surprised if Visa tried to increase the margins in Europe at the expense of the banks.’

The deal will comprise £8.2bn of cash and £3.6bn in shares paid by Visa and is due to close in the third quarter of next year.

Four years after the deal completes the banks could receive another payout of more than £3.3bn if sales targets are met.

The buyout ends years of speculation about when Visa Inc would swoop, but the figure being paid is far higher than most predicted.

More than 3,000 firms will benefit from the deal, including other European banks such as Santander.

The deal allows Visa to reunite its payment systems under one global company. It was separated when the US arm floated in 2007.

Visa chief executive Charlie Scharf said: ‘This transaction is beneficial for financial institutions, acquirers, merchants, cardholders, and other partners, as well as for our employees and shareholders.’

Although the agreements may appear like a jackpot for shareholders of the banks, the profit is unlikely to be passed directly to the investors. Worldpay, which floated in London last month, will pass 90pc of the profit to its previous owners, with only 10pc going to the company, whose shares rose 6p to 285p, more than 18pc ahead of its 240p float price last month.

As part of the pre-arranged deal ahead of Worldpay’s float, private equity investors Bain Capital and Advent International, who were behind the float of the payments business, will receive the bulk of the pay-out.

Despite fears the deal will see some users move to rivals, Worldpay confirmed it will continue to be part of the Visa payments system. Shares in the banks rallied yesterday, apart from HSBC (down 4.1p to 503.5p), which separately announced thirdquarter results (See Page 63).

Barclays rose 4.05p to 236.05p, Lloyds lifted 1.27p to 75p and RBS rallied 5.5p to 323.1p.

Visa’s profit jumped more than 40pc to £970m in the three months to the end of September. It said it expected to make £130m of savings from the deal in 2020 – largely from technology and systems – a 30pc cut in costs.

‘We don’t see this as a free lunch’