The move follows a similar swap in 2024 that generated a $7.9 billion accounting gain, and another in 2022 that produced a $914 million gain.
These stock swaps are part of Visa's plan to dismantle a special share arrangement that was created ahead of its 2008 IPO. At the time, Visa issued three distinct share types so that banks holding Visa shares prior to the IPO would continue to bear financial responsibility for expenses arising from the payment network's prolonged legal battles with big US retailers regarding swipe fees.
The unusual share structure dates back to Visa's transformation from a bank-owned cooperative into a publicly traded company. To shield itself from liability, Visa required its original member banks to retain a special class of stock that would absorb any losses from merchant lawsuits. As the litigation dragged on for years, banks like JPMorgan held these shares as a contingent liability.
Now, with a settlement in sight, Visa is buying back those special shares, allowing banks to swap them for common stock and realize significant accounting gains. JPMorgan's recent swap follows similar moves by other financial institutions, reflecting the gradual resolution of a decades-old legal dispute.
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Each time a bank like JPMorgan trades its old shares for regular ones, it records an accounting gain based on the difference in value.
For many years, Visa and competitor Mastercard Inc. have been locked in disputes with merchants about swipe fees - the percentage retailers give up each time a shopper pays with a credit card.
A court has given preliminary approval to the latest settlement reached by both parties. Under the proposed deal, Visa and Mastercard will let merchants reject certain higher-cost credit cards.
To understand why JPMorgan's swap produced such a large profit, it helps to look back at how Visa's unusual share classes worked. When Visa went public in 2008, it issued Class A (common) shares to the public, Class B shares to banks that were part of the cooperative, and Class C shares that carried the litigation risk. The Class C shares effectively acted as a buffer: if Visa lost a merchant lawsuit, the value of those shares would decline first, protecting common shareholders.
Now that a settlement is near, Visa is converting those shares into common stock, and banks can record the difference between the near-zero carrying value and the market price of the common shares as a gain. That explains why JPMorgan's profit appears so large - it is essentially reversing a long-held contingent liability.
Other major banks that held Visa shares, including Bank of America and Citigroup, have similarly swapped their Class C shares in recent years, realizing billions in total gains. The process is expected to continue until all the special shares are eliminated, marking the end of a unique chapter in Visa's history.
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