Is Virtu The SEC’s New VISA?
- Strategeriest
- Jun 10, 2021
- 3 min read
Good morning,
As someone who has utilized The SEC’s Whistleblower program, I can attest there are some noble, and hardworking people at that agency who seem to want to uphold the laws of the Unites States and do the right thing.
However, there are some conspiracy theorists who believe many of their publicized enforcement actions are politically motivated. I am on the fence regarding this but consider it a possibility after contemplating their actions against Visa In the early to mid 2010’s and the Martin Shkreli trial which seemed like a witch hunt to me. I did not read too much into the trial, but respected him for making his investors whole, giving away free medicine, and working to develop a safer version of the drug he was raising prices on.
To people who do not remember the SEC’s Political Attacks On Visa in 2012/2013, they were concerning to me as an investor.
I valued the company in the summer of 2014, and noticed they had no leverage on their balance sheet. At the time, I estimated Visa could modify its capital structure to include a moderate amount of debt (30%) to finance capital investment. My calculations concluded the net result would be an increase of about $18 billion in estimated enterprise value. This left me flummoxed as to why they would not make such an adjustment.
I understood their of lack debt negated leverage risk, which was a plus for the owners of the largest open-loop payment network in the world in terms of negotiating credit agreements with their business partners. However having absolutely no debt on their balance sheet confused me, even from a credit analysis standpoint. Having zero debt on one's balance sheet is certainly far below the threshold that would cause any credit analyst at a counterparty concern.
It took me a while to to put together a hypothesis regarding their balance sheet management practices. Once I figured out that they seemed to get fined almost every time they had surprise earning results, I adjusted my hypothesis. My Hypothesis regarding their balance sheet encapsulated the assumption that management of the company was intentionally not making money. At the time, I theorized this was because they were being abused by the SEC. It seemed if they kept their earnings down, they would not get fined.
My hypothesis at the time was the SEC was able to inappropriately fine this company because of the political atmosphere in the United States and a general lack of understanding of what Credit Card companies do by the public.
Visa creates value for its shareholders by maximizing the return from its three major sources of revenue: service fees, data processing fees and cross-border transactions. However, as the banks collect high interest payments from people who willingly sign up for credit cards, some people seem to smile every time they see the government is “sticking up” for them and going after the credit card companies.
I am hoping Virtu does not suffer the same fate.
I love not having to pay fees for stock trades. I think allowing retail investors to move in and out of the market is a wonderful thing. It allows people to hedge their wealth quickly and cheaply. It may also allow for children to make donations to their num num providers, get in good with their local video game retailer, and maybe cut a line at the movie? However, this does not seem like bad thing.
Leverage of retail accounts seems to be the only financial risk to the market regarding these trades, and it is what the SEC should be focusing on. If they believe there is a cartel of people illegally coordinating trades, it should not be hard for them to get warrants they need to query the banks’, brokers’, and communication platforms’ databases for data they need to confirm their hypothesis.
Holding Companies providing a valuable service to the markets responsible for something they had nothing to do with seems like another witch hunt.
Warmest Regards,
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