MasterCard Profit Beats Estimates as Spending Climbs

MasterCard Inc., the world’s second- biggest bank-card network, said fourth-quarter profit jumped 41 percent on a surge in U.S. consumer spending and the global migration to electronic payments.

Net income climbed to $415 million, or $3.16 a share, from $294 million, or $2.24, in the same period a year earlier, the Purchase, New York-based company said today in a statement. The average estimate of 30 analysts surveyed by Bloomberg was $3.05.

“Based on the spending trends we’ve seen and the improving consumer confidence, I’m cautiously optimistic that we’ll see continued improvements in 2011,” Chief Executive Officer Ajay Banga said in a conference call with analysts.

Banga, 51, who has declared a “war on cash,” is seeking growth in emerging markets through acquisitions. The company paid $526 million in October for DataCash Group Plc, a U.K. credit-card processor, to expand e-commerce offerings. In December, MasterCard said it would buy prepaid card-management assets from London-based Travelex Holdings Ltd. for 290 million pounds ($470 million).

Net revenue during the three months ended Dec. 31 increased 11 percent to $1.44 billion as operating expenses, adjusted for currency changes, rose 4.6 percent to $869 million, driven by an increase in advertising and marketing spending.

Spending Climbs

Worldwide purchases on MasterCard and Maestro-branded cards climbed 11 percent to $567 billion based on local currencies, the company said. Cross-border volume, a measure of spending by consumers traveling outside their home countries, surged 19 percent. Processed transactions advanced 6.3 percent to 6.2 billion.

Debit card spending rose 15 percent worldwide, fueled by a 29 percent increase in markets outside the U.S., while global credit-card spending was up 8.8 percent.

Higher consumer spending in the U.S. also is spurring growth for MasterCard and larger rival Visa Inc. Household purchases, which account for about 70 percent of the economy, rose at a 4.4 percent pace in the quarter, the most since the first quarter of 2006, according to Commerce Department figures released Jan. 28. MasterCard credit-card purchases rose 2.2 percent in the U.S., climbing for the first time in 11 quarters, Banga said.

Visa yesterday said fiscal first-quarter net income advanced 16 percent to $884 million, as processed transactions and total card spending rose.

MasterCard gained 2.5 percent, the most in four weeks, to $245.39 at 4:15 p.m. in New York Stock Exchange composite trading. San Francisco-based Visa fell 0.6 percent to $71.63.

Debit Caps

MasterCard and Visa are contending with investor concern that U.S. caps on debit-card interchange fees, set to take effect in July, may lead to more regulation and damage their business model.

The Federal Reserve has proposed capping interchange, or “swipe” fees, at 12 cents for each debit-card transaction, replacing a formula that costs merchants about 1 percent of the purchase price. The caps, mandated by the Dodd-Frank law that overhauled the financial industry last year, may reduce annual revenue at U.S. banks by more than $12 billion.

Visa and MasterCard set interchange rates and pass the money to card issuers such as Charlotte, North Carolina-based Bank of America Corp., which estimated that the debit limits may reduce annual revenue by $2.3 billion. The lender said last month that it will charge retail customers checking account fees unless they maintain minimum balances, make regular deposits, use credit cards or take advantage of online services.

‘Very Concerning’

Banga said MasterCard will lobby Congress to seek changes in the legislation.

“Interchange provides the balance between the cost consumers pay and the cost merchants pay,” he said in the conference call. “When that balance is tinkered with, the unanticipated consequences become very, very concerning.”

MasterCard also has agreed to divide costs with fellow defendants in antitrust litigation brought by merchants, in the event of a settlement or judgment, the company said today in a regulatory filing. If a global accord were reached that also included Visa and defendant banks, MasterCard would contribute 12 percent of the payment.

Negotiations over the judgment-sharing agreement prevented MasterCard from buying back shares under a $1 billion repurchase program authorized in September, said Chief Financial Officer Martina Hund-Mejean in a telephone interview.

“These are material agreements and therefore the lawyers did not allow us to be in the market to repurchase the shares,” Hund-Mejean said. The company should be “free and clear” to resume buybacks in the current quarter, she said.

To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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

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