CHICAGO, July 17, 2012 /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 MasterCard Inc. (NYSE: MA), Visa Inc. (NYSE: V), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM).
Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Monday's Analyst Blog:
MasterCard, Visa Settle $7.25B Merchant Suit
Last week, credit card giants MasterCard Inc. (NYSE: MA) and Visa Inc. (NYSE: V) entered into a formal agreement with the federal court of Brooklyn to settle a multi-state US merchant lawsuit. About 7 million merchants or retailers had charged the card companies in 2005 for fixing prices and unduly increasing processing or interchange fees on transactions made through debit and credit cards.
Accordingly, Visa and MasterCard have agreed to pay about $6.0 billion to the retailers. While Visa is expected to incur a cash settlement charge of $4.1 billion, MasterCard projects to record $790 million (pre-tax) as lawsuit penalties in the second quarter of 2012.
MasterCard anticipates another pre-tax charge of $20 million during the second quarter of 2012. Another $525 million in damages are payable to the retailers who had individually sued these card companies. An additional future loss of $1.2 billion is estimated to be incurred by the card giants due to the reduction of interchange fees on credit cards by 10 cents for the next eight months.
Thirteen more banks, including Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) are involved in this antitrust litigation. The overall settlement is estimated to be worth $7.25 billion, by far the largest in the history of antitrust settlements.
However, the National Association of Convenience Stores, a big part of the plaintiff's side, has rejected the settlement. This again poses the risk of bearing higher financial penalties by the card companies in the future.
Card Industry Awaits Complete Reform
Finally, the Consumer Protection Act enacted in 2010 is coming in handy to rescue the merchants and consumers one way or the other. While it was expected to introduce real prices to create a healthy competitive environment, the American Bankers Association opines that the merchants, and not the end-consumers, are more likely to benefit from these modifications made to the interchange fee rule.
Additionally, it eases the pressure on merchants, who now encourage cash payments by offering discounts or low cost debit or credit cards. The merchants who have more than one store can also choose to receive payments from MasterCard or Visa in some of their stores.
Under the antitrust settlement, the merchants also have permission to put a surcharge on some credit transactions above a certain limit. Although these modifications are liable to make the merchants powerful, the consumers may still have to bear the brunt of the cost of operating the card network from the issuing banks, directly or indirectly.
Litigation Deters Card Giants' Earnings
Moreover, as witnessed in the past, litigation settlements have marred the bottom line of both Visa and MasterCard. In 2003, both card giants settled a joint lawsuit for $3 billion, while another civil lawsuit by the Department of Justice was settled by them in 2010.
Consequently, Visa inflates its escrow account from time to time to meet such litigation expenses. The escrow account currently stands at $4.28 billion. Even MasterCard settled a $770 million lawsuit in the fourth quarter of 2011. We believe these hefty funds could have been otherwise used for growth purposes.
Going forward, the new rules are liable to weigh on the margins of the card giants. So far, however, both Visa and MasterCard do not foresee any changes in their annual growth guidance, which reflects their preparation to deal with the lawsuit.
While Visa is scheduled to release its fiscal third quarter results after the closing bell on July 25, 2012, MasterCard is slated to announce its second quarter results before the market opens on August 1, 2012. Currently, both the companies carry a Zacks Rank #3, which translates into a short-term Hold rating and long-term Neutral recommendation.
Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
SOURCE Zacks Investment Research, Inc.