Visa: Another Dollop of Dollar for the Merchant Litigation

Visa Inc. (NYSE: V) announced a planned deposit of about $1.6 billion into its litigation escrow account, which also serves as a share buyback under Visa's retrospective responsibility plan.

While we await final details, we believe the deposit could add about $0.10 to calendar 2012 EPS, and thus well received by investors. Despite the latest deposit, we continue to feel the merchant litigation still has some time to play out, said Jason Kupferberg, an analyst at Jefferies.

While final details of the deposit are yet to be released, Kupferberg believes the transaction could add to Visa's calendar 2012 earnings by about $0.10 per share.

He also believes investors will be buoyed by the buyback, which he believes could be executed within the next month. He does caution, however, investors will remain alert for announcements of a further return of cash to shareholders, now that the existing allocation has been exhausted.

Kupferberg noted that Visa regularly makes these deposits/buybacks. The last three Visa-made deposits/buybacks include: $400 million in March 2011, $800 million in October 2010 and $500 million in May 2010.

Including the recent announcement, Kupferberg believes that Visa's litigation escrow account currently has a balance of about $4.3 billion. He noted that Visa's 10K recently put the company's minimum settlement share at $2.7 billion, which will be absorbed by the banks as part of the retrospective responsibility plan.

We do not believe that the announcement indicates that a settlement to the merchant litigation is necessarily imminent, though we continue to believe the pace of the lawsuit could quicken as we draw closer to the tentative Sept. 2012 trial date, said Kupferberg.

Kupferberg said key items pending in the case include plaintiff class certification (may come in the next month or two and he believes is likely to be granted) and rulings on both plaintiff's and defendants' motions for summary judgment.

Visa stock closed Friday's regular trading up 1.93 percent at $102.48 on the NYSE.