CHICAGO, Dec. 2, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Visa Inc. (NYSE: V), MasterCard Inc.(NYSE: MA), American Express Co. (NYSE: AXP), Discover Financial Services (NYSE: DFS) and Caterpillar Inc. (NYSE: CAT).
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Here are highlights from Thursday's Analyst Blog:
Debit Fee Rule Makes Visa Restless
Visa Inc. (NYSE: V) appears to have tried out every means to delay the implementation of the debit-fee ruling finalized in June this year, due to which the company's lobbying charges increased substantially during the third quarter of 2011.
However, Visa's close rival, MasterCard Inc. (NYSE: MA) is apparently more relaxed about regulatory issues having witnessed a significant decline in its third quarter lobbying charges. Other card players such as American Express Co. (NYSE: AXP) andDiscover Financial Services (NYSE: DFS) are yet to reveal their lobbying data.
Early this week, according to a disclosure report, Visa and MasterCard reportedly spent $1.69 million and $0.58 million, respectively, in the third quarter of 2011. While lobbying costs for Visa jumped 54% year over year and 17% sequentially, the same for MasterCard plummeted 31% from $0.84 million in the year-ago quarter and 25% from $0.77 million reported in the sequential quarter.
In the July-September period of 2011, Visa and MasterCard took the federal government into confidence regarding the regulation of consumer financial products, interchange fees, online payments, data security, and internet gambling among other issues. Overall, the companies lobbied the Congress, the White House and the Treasury Department.
While both the card giants lobbied the federal government on multiple issues, the most primary one was the recent reduction on interchange fees charged on debit card transactions.
The Dodd-Frank Act signed in July 2010 limited the interchange fees that card issuers charge merchants for using the card, which constitute a major component of card issuers' revenues. These issues have been unsettling the card giants, thereby compelling them to lobby against them.
Furthermore, after months of discussions, the Federal Reserve (Fed) capped the interchange fee at 21 cents per debit transaction in July this year, drastically down from the average of 44 cents. This reduction will hamper revenues of the banks, which in turn will affect the card companies as banks would now try to trim the fee they pay to use the respective card networks.
Moreover, despite several initiatives to delay or modify this fee-ceiling, the ruling has been implemented effective October 1, 2011, thereby indicating caution on these card giants. The debit-fee cap has particularly hit Visa very hard since most of its revenue is generated from the debit card business. The company processes the largest number of debit transactions in the US, well ahead of MasterCard.
Though the new rules will protect credit card users from unreasonable late payment fees, interest rate hikes and other penalty fees, they could even adversely affect the profitability of these major card issuers.
As a result of execution of the rule, Visa's growth is expected to slow down in fiscal 2012, which is also reflected from its top-line growth guidance in high single-digit to low double-digits range and bottom-line growth in the middle-to-high teens. However, MasterCard would not go unscathed, although its growth slump is not expected to be as severe as for its arch rival Visa.
Nevertheless, we believe that both card giants are fundamentally strong stocks and, are expected to deliver well with the market stability. Besides, the companies are also seeking greener pastures through newer initiatives, including the expansion into prepaid cards, mobile banking and eCommerce.
