Summary
US Bancorp (USB) filed an 8-K on December 21, 2007, detailing significant events impacting its financial position and future outlook. The report primarily addresses two key areas: litigation and financial market developments. Regarding the Visa Reorganization and its associated litigation, the company announced it will recognize a charge of approximately $215 million (or $0.09 per diluted common share) in its fourth quarter 2007 financial statements. This charge reflects the estimated fair value of its contingent obligation to indemnify Visa Inc. for potential losses from ongoing litigation, as guided by the SEC accounting staff. The company also stated that it will not reflect any value for its Visa membership interest in its fourth quarter financials, with the ultimate value to be realized upon the Visa IPO, expected to exceed the recorded charges. Furthermore, the report discloses that due to continued liquidity disruptions and deterioration in asset-backed commercial paper (ABCP) values, particularly those linked to sub-prime and alternative mortgage products, US Bancorp purchased certain ABCP holdings from money market funds managed by its subsidiary, FAF Advisors. This action will result in a valuation loss of $110 million (approximately $0.04 per diluted common share) recognized in the fourth quarter of 2007. The company explicitly states this purchase is not a precedent for future support to these funds.
Key Highlights
- 1US Bancorp will record a $215 million charge in Q4 2007 related to its contingent obligation for Visa litigation, impacting earnings by $0.09 per diluted share.
- 2The company will not recognize value for its Visa Inc. membership interest in Q4 2007 financials; value realization is tied to the Visa IPO and expected to exceed recorded charges.
- 3A $110 million valuation loss ($0.04 per diluted share) will be recognized in Q4 2007 due to the purchase of distressed asset-backed commercial paper from FAF Advisors' money market funds.
- 4The SEC accounting staff provided guidance on accounting for Visa Reorganization and associated litigation obligations.
- 5Visa's IPO is anticipated in Q1 2008, with a portion of member shares to be redeemed for cash and the remainder converted to Class A shares.
- 6US Bancorp views the purchase of ABCP from its FAF Advisors funds as a non-precedent action.
- 7Visa has set aside IPO proceeds for an escrow account to fund litigation expenses and member institutions' share of judgments or settlements.