Safe Bet In Visa CEO Transition Could Backfire

NEWSMAKERS: US


By Valentina Pasquali


With electronic payments gaining favor among consumers, credit-card giant Visa is enjoying high profits and a positive outlook for long-term growth.

 

It is no surprise, then, that the world’s largest payments network chose continuity over change when it recently appointed Charles Scharf as its new CEO.

 

At the time of his selection, Scharf, 46, was MD at One Equity Partners, which handles $10 billion in investments and commitments on behalf of JPMorgan Chase, Visa’s largest client. Previously he was CEO of retail financial services for JPMorgan Chase, CFO of Bank One and, before that, in the global corporate and investment bank at Citigroup. He also served on the board of Visa from 2003 to 2011.

 

“They played it safe––Scharf knows Visa very well,” says Michael Kon, senior equity research analyst for Morningstar. “This signals that the vision and the strategy of the company are not going to change dramatically or even materially from the course that [former CEO and chairman Joseph] Saunders set during his tenure.”

 

Visa went public in 2008 with an $18 billion IPO that, at the time, was the largest in US history. Today Scharf inherits a company that exudes good health. Its fiscal fourth-quarter profit (for the three months ending on September 30) beat expectations, with net income rising 89%. Its stock has so far grown nearly 40% this year, the sixth-best performance in the S&P 500.

 

“He is somebody who has been in a variety of places within financial services but particularly who has spent much of his career within the payments realm,” says Gil Luria, managing director for equity research at Wedbush Securities, “which is what qualifies him so highly to be CEO of Visa.”

 

But there are hurdles ahead for Scharf as the electronic payments sector is flooded with new technologies and players that have emerged from outside banking, like PayPal. “The industry is becoming more competitive,” says Morningstar’s Kon. “So it is hard to think of a candidate that will be able to withstand the type of challenges arising in terms of competition and new technology.”

 

Considering this sea change, Visa’s selection of Scharf was safe—but not particularly brave: “To the extent that you can find downsides in appointing someone who has that much relevant experience,” says Wedbush’s Luria, “they could have brought in an international candidate or somebody who has not spent all of his career in financial services or payments and try to move things at a time when there is a lot of technological innovation.”

 

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