European banks set for windfall from Visa Europe deal -sources

(Adds details, background)

By Steve Slater

LONDON, Oct (HKSE: 3366-OL.HK - news) 16 (Reuters) - Europe's banks are in line to share billions of euros from a buyout of Visa Europe by its U.S (Other OTC: UBGXF - news) . sister company Visa Inc (Xetra: A0NC7B - news) ., which is expected to be sealed in the next two weeks, sources said.

Credit card company Visa is in talks to buy Visa Europe, and proceeds would then be shared by more than 3,000 banks and payment firms that own the network.

Visa Inc. wants to re-unite with the European arm to give it more global scale to compete with arch-rival MasterCard. It (Other OTC: ITGL - news) said in July it wanted to conclude talks by the end of October.

Sources familiar with the matter said the deal was close to being agreed, with one saying it is earmarked for Oct. 23 or shortly afterwards, once the boards formally approve a deal.

Sky News has previously reported Visa Inc.'s offer is worth $21 billion.

Britain's Barclays (LSE: BARC.L - news) could get about $2 billion from a deal, as banks will be paid based on how much business they account for on the Visa Europe network. The data are not publicly available but Barclays accounts for about 10 percent of the business, industry sources estimated.

The windfall would be a welcome boost for a European banking sector hit hard over the last few years by the global financial crisis, fines and tighter regulation.

The sources estimated British banks account for about 40 percent of Visa Europe's card payments, so could be in line to receive about $8 billion, or more than 5 billion pounds. Much of the remaining activity is in France, Spain and Italy.

That could see major banks including Lloyds, Royal Bank of Scotland, HSBC, Santander and BNP Paribas (Xetra: 887771 - news) in line for hundreds of millions of euros each, sources said.

Visa Europe declined to comment and Visa Inc. did not immediately return requests for comment.

Visa Europe processed 16.1 billion transactions last year and its cards are used to pay for 1 euro in every 6.1 euros spent in the region.

The structure of the deal is expected to include an upfront payment and some deferred payments, the sources said.

That is a complicating factor, however. Any payments that depend on future performance-related measures could be regarded as "locking in" banks to the Visa system and be seen as anti-competitive if they extend for several years, sources said.

Another complicating factor regards potential future legal costs due to the threat of lawsuits related to past interchange charges, fees paid between banks on card transactions.

Regulators on both sides of the Atlantic have waged lengthy battles against interchange charges and the EU this year capped fees on purchases by debit and credit cards, which will come into effect in December.

Visa Europe made a pre-tax profit of 343 million euros ($389.3 million) in the year to the end of September 2014, on revenues of 1.3 billion euros. It dominates the debit card market, although MasterCard has a bigger share of the credit card market.

Under a long-standing agreement Visa Europe has a put option which would oblige Visa Inc to buy it at a price calculated by a formula. Visa Inc. is also free to make an offer to Visa Europe at any time and price. ($1 = 0.8811 euros) (Editing by Sinead Cruise and Adrian Croft)