FBR Capital on Financial Institutions/Financial Policy: Interchange Rule Slightly Less Onerous; Uncertainty Reduced
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Up: 8 | Down: 5 | New: 26
Rating Summary:
45 Buy, 6 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital on Financial Institutions/Financial Policy: Interchange Rule Slightly Less Onerous; Uncertainty Reduced
FBR analyst says, "We view the final interchange rule as positive for shares of Visa (NYSE: V)(Outperform) and MasterCard (NYSE: MA)(Outperform), given the slightly higher-than-expected fee cap and the selection of alternative "A" regarding exclusivity. Importantly, the issuance of the final rule removes a significant overhang from V and MA shares. We see the final rule as having less impact on American Express (NYSE: AXP)(Market Perform) and Discover Financial Services (NYSE: DFS)(Outperform). We estimate the less onerous fee cap equates to $0.24 per average debit transaction, or a 45% reduction, compared to the average pre-Durbin interchange fee of $0.44, but significantly better than the initial fee cap proposal of $0.07–$0.12, or a 73%–84% reduction. In addition, network fees are now included as part of the fee cap, which, given the absolute higher fee cap and ad valorem component, we believe, incrementally reduces potential pressure on network fees. We expect the rate of debit volume growth to slow as issuers de-emphasize less profitable debit cards; however, we expect Visa and MasterCard to capture the majority of "lost" transactions via increased prepaid and credit card volumes as issuers emphasize higher interchange products."
FBR analyst says, "We view the final interchange rule as positive for shares of Visa (NYSE: V)(Outperform) and MasterCard (NYSE: MA)(Outperform), given the slightly higher-than-expected fee cap and the selection of alternative "A" regarding exclusivity. Importantly, the issuance of the final rule removes a significant overhang from V and MA shares. We see the final rule as having less impact on American Express (NYSE: AXP)(Market Perform) and Discover Financial Services (NYSE: DFS)(Outperform). We estimate the less onerous fee cap equates to $0.24 per average debit transaction, or a 45% reduction, compared to the average pre-Durbin interchange fee of $0.44, but significantly better than the initial fee cap proposal of $0.07–$0.12, or a 73%–84% reduction. In addition, network fees are now included as part of the fee cap, which, given the absolute higher fee cap and ad valorem component, we believe, incrementally reduces potential pressure on network fees. We expect the rate of debit volume growth to slow as issuers de-emphasize less profitable debit cards; however, we expect Visa and MasterCard to capture the majority of "lost" transactions via increased prepaid and credit card volumes as issuers emphasize higher interchange products."
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