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American Express Drops on Proposed EU Cap to Retail Fees

July 17 (Bloomberg) -- American Express Co., the biggest U.S. credit-card issuer by purchases, dropped the most in a year after Wall Street analysts said a European Union proposal would cut profits. Shares pared losses after the company said the impact would be limited.

The stock slid 2.6 percent to $76.25 at 1:34 p.m. in New York after an early decline of as much as 4.7 percent, the biggest intraday drop since last July. The lender is today’s worst performer in the Dow Jones Industrial Average.

The European Commission, the 28-nation EU’s executive arm, will propose that so-called swipe fees, or interchange, paid by retailers on bank-card transactions should be capped at 0.2 percent for debit payments and 0.3 percent for credit, according to draft plans obtained by Bloomberg News. The proposed rules won’t affect most of AmEx’s business, the lender said in a statement that helped ease the drop in its shares.

“Our proprietary consumer and corporate-card businesses are not covered by the proposed pricing caps,” New York-based AmEx said in the statement. The fee AmEx charges retailers for accepting its cards, the so-called merchant-discount rate that averages about 2.5 percent per transaction, “would not be regulated,” the lender said.

‘Head Fake’

The proposal would reduce AmEx’s earnings per share by about 3.7 percent because the company gets 11 percent of its business from Europe, Morgan Stanley analysts wrote in a research note. Credit Suisse Group AG analysts said the plan would hurt American Express more than MasterCard Inc. or Visa Europe Ltd., which already had agreed to provisionally cap some fees.

Donald Fandetti, an analyst at Citigroup Inc., described the reaction to the European Commission’s proposal as a “head fake,” according to a note he published after the shares declined and AmEx issued its statement. In a report to clients before trading opened on the New York Stock Exchange, Fandetti advised clients to buy the shares if they fall “as the market could overshoot on misinformation and confusion.”

EU antitrust regulators have targeted credit- and debit-card fees for a decade, saying that the way the charges are set is anti-competitive. Retailers oppose the fees associated with accepting credit and debit cards. Authorities this year started a probe into MasterCard’s charges on foreign-card transactions.

American Express is scheduled to report second-quarter results today after U.S. markets close.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Christine Harper at charper@bloomberg.net

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