Fairness and the Visa IPO

Dealbook reports that Jesse Jackson wants more minority bank participation in the Visa IPO underwriting fees:

He told DealBook there is a need to increase minorities’ “access to capital,” which he argued could not happen if minority-owned firms did not receive opportunities like plum positions in the Visa stock offering. . . .

[J]ust as Visa has included its member-bank owners as underwriters in its stock offering, so too must it include representatives of the users of its credit card. Mr. Jackson told DealBook that blacks and Latinos comprise some 35 percent of Visa card users. But he calculated that firms owned and run by those groups will receive just $1 million, or 0.3 percent, of the total underwriting fees. . . . .

How much does Mr. Jackson think is fair? Asked that question by DealBook, he replied, “About 10 percent.” If changes aren’t made to the underwriting structure, Mr. Jackson said he will call for Congressional hearings to look into potential discrimination against minority-owned firms on Wall Street.

Visa has relationships with banks in various capacities – as issuers of Visa cards, as acquirers of card debt, and now as underwriters. Visa doesn't issue cards, so cardholders are not directly its customers, though they are, of course, indirectly the source of its wealth.

The fact that a bank is an issuer or an acquirer of card debt doesn't have much or anything to do with whether it will do a good job managing the underwriting or selling its securities, and therefore whether it should have a cut of the fees. Indeed, one might argue that bringing in an issuer or acquirer as an underwriter is a form of kickback, or perhaps more benignly a price cut. Visa should be nice to its users, including members of minority groups. But the way for Visa to be "nice" is through the price and quality of its services – not by paying kickbacks to banks.

I have no quarrel with Jackson's main argument that it would be good to give minority-owned banks a bigger piece of the action on Wall Street. I just don't see what this has particularly to do with Visa. 

Comments

[M. Hodak]

"It would be good to give minority banks..." most people can agree with. But Jackson says, "there is a need to increase minorities 'access to capital'" by preferential treatment. I have three problems out of the box with that:

1) "There is a need" is code for "I want." So what; you're not a party to the transaction. If he was arguing that the actual parties were acting contrary to public policy, if he were accusing them of active exclusion on racial grounds, telling black firms to get to the back of the bus, then he'd have at least a moral claim. He's got nothing.

2) "Access to capital," as I think Dealbook points out by it's scare quotes, is not really the issue, is it. Jackson, reflecting his financial ignorance, simply wants minorities to get fees. So his request comes down to, "I want minorities to get more money." So do I, if they can earn them.

3) Actually, he conflates "minority-owned firms" with "minorities" (and we know he's only speaking on behalf of one set of minorities). There is no reason to expect that pushing more business to minority owned firms will benefit any individual African-Americans, aside from those already well-connected enough to get their name on the door of a "preference" firm, the very people who already have the playing field tilted in their favor by minority recruitment efforts in so many other ways.

I wish he'd go back to his original message (long ago) of kids staying in school and working hard to succeed on their own merits.