Bloomberg News

Visa Drops on U.S. Antitrust Probe of Debit Strategy

May 03, 2012

Visa Inc. (V:US)shares slid (V:US) 4.7 percent, the most since August, after the world’s biggest electronic-payments network disclosed a U.S. antitrust probe into its pricing for debit-card transactions.

The U.S. Justice Department’s antitrust division asked the San Francisco-based company for information about its debit strategy on March 13, Chief Executive Officer Joseph W. Saunders said yesterday.

“In a bad-case outcome, Visa may need to alter elements of its strategy,” wrote Tien-tsin Huang, a JPMorgan Chase & Co. analyst, in a note to clients. “The issue may take nine to 24 months to resolve.” The probe puts only 2 percent of revenue at risk, said Huang, who kept his “overweight” recommendation on the stock and raised his earnings forecast.

Saunders, 66, adjusted the network’s fee structure to defend Visa’s leading market share after U.S. rules on debit- card processing took effect in October.

“We are confident our actions are appropriate and that our response to the DOJ supports that,” Saunders said yesterday in a conference call after Visa posted a 47 percent jump in fiscal second-quarter profit. The firm received four other requests for information from the Justice Department since 2007, and “all have been resolved,” he said.

Visa declined $5.78 to $116.41 in New York. The shares have advanced 15 percent this year.

Net income for the three months ended March 31 climbed to $1.29 billion, or $1.91 a share, from $881 million, or $1.23, a year earlier, Visa said in a statement. Adjusted earnings per share, which excluded an accounting gain, were $1.60, beating the $1.51 average estimate (V:US) of 32 analysts surveyed by Bloomberg.

U.S. Credit

“Our strong financial performance this quarter was fueled by continued growth of U.S. credit products, strong cross-border spending and expansion of Visa’s core business in international markets,” Saunders said in the statement.

Visa increased its 2012 profit forecast, saying it expects annual earnings-per-share growth in the “high teens to low twenties,” up from the “high teens.”

Operating revenue rose 15 percent to $2.58 billion, Visa said in the statement. The results were boosted by the $208 million accounting gain tied to deferred-tax liabilities, the company said. Pretax income climbed 17 percent to $1.61 billion.

Visa and MasterCard Inc. (MA:US), the No. 2 network, are boosting profits amid a shift by consumers worldwide from cash and checks to electronic payments. MasterCard said yesterday that first- quarter profit increased 21 percent to $682 million, beating Wall Street estimates, as spending rose and the firm gained market share.

Dodd-Frank Act

The limits on debit-card transaction fees and processing, mandated by the Dodd-Frank Act, may have helped Purchase, New York-based MasterCard wrest market share from Visa, which handled more than triple the amount of such purchases than its smaller rival in the fiscal year ended Sept. 30.

MasterCard has been winning deals to handle processing of debit transactions, bolstering financial results, Chief Financial Officer Martina Hund-Mejean said in a conference call with analysts.

“In every quarter we’re going after business very surgically and opportunistically,” she said. “You can see those results in our numbers.”

One lender that switched to MasterCard is Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. debit- card issuer by purchases, Huang said in a May 1 research note.

Merchant Incentives

Visa changed its debit-card fees in April, creating incentives for merchants to route more transactions on the company’s network. The fees, which had been variable, were broken into three components, including a fixed fee and an incentive portion that gives credit to merchants for using the network more, CFO Byron Pollitt said in a March 13 presentation.

Visa’s share of worldwide purchase transactions on both credit and debit cards, including those processed by Visa Europe Ltd., fell 1.1 percentage points last year to 64.67 percent as MasterCard’s share expanded by almost half of a percentage point to 25.57 percent, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • V
    (Visa Inc)
    • $216.16 USD
    • 0.90
    • 0.42%
  • MA
    (MasterCard Inc)
    • $76.63 USD
    • 0.94
    • 1.23%
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