Company's share price pummelled after sell-off by fund firms; 'fundamentals remain solid'
Vanguard Group Inc. and Marsico Capital Management were the biggest sellers in the second quarter of Visa Inc., the world's largest payments network, as the stock posted its steepest decline in almost two years.
Vanguard, previously the third-biggest investor in San Francisco-based Visa, sold its stake of 16.3 million shares, valued at $1.15 billion as of June 30, the firm disclosed in a regulatory filing. Marsico liquidated its remaining 10.4 million shares and also closed out its investment in No. 2 network MasterCard Inc., selling 5.21 million shares.
The stocks are “trading near Armageddon levels,” Morgan Stanley analyst Adam Frisch wrote in an Aug. 17 research note.
Visa and MasterCard both fell more than 20 percent in the three months ended June 30 as Congress approved limits on debit- card interchange, or “swipe” fees, charged to merchants. The companies and their investors are waiting for the Federal Reserve to determine fees that are “reasonable and proportional” to the cost of processing debit transactions.
“The sudden change in the regulatory backdrop has introduced a significant amount of uncertainty, and there's nothing the Street hates more than uncertainty,” Jason Kupferberg, an analyst with UBS AG, said in an interview today.
The law also directs the Fed to issue rules barring the networks from requiring that their debit cards be used on only one processor. That non-exclusivity provision may create an opportunity for competing networks, including one run by KKR & Co. subsidiary First Data Corp., to gain market share. Visa accounted for 73 percent of U.S. debit purchase volume in 2009.
Visa and MasterCard, based in Purchase, New York, set interchange fees and pass the money to card-issuing banks such as Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. The caps, scheduled to take effect next year, could reduce Bank of America's annual revenue by as much as $2.3 billion, the Charlotte, North Carolina-based lender has said.
Banks may seek to mitigate the decline in interchange revenue by renegotiating their contracts with Visa and MasterCard. The contracts are the biggest revenue sources for the networks, generating $3.17 billion, or 46 percent of net revenue, for Visa in fiscal 2009.
Visa spokesman Will Valentine and Chris Monteiro of MasterCard declined to comment.
MasterCard and Visa continue to grow profit amid a worldwide consumer shift from cash and checks to plastic. Morgan Stanley's Frisch is among 33 analysts surveyed by Bloomberg who recommend investors buy the companies' shares.
The stocks are “relatively cheap,” Frisch said in his research note. “Fundamentals remain solid.”
Visa fell 24 cents, or 0.3 percent, to $73.12 at 11:42 a.m. in New York Stock Exchange composite trading. MasterCard dropped 78 cents to $213.25.
Viking Global Investors LP, the hedge fund co-founded by Andreas Halvorsen, also closed out its position in Visa, selling 9.71 million shares valued at $687 million. Children's Investment Fund Management UK LLP, the hedge fund founded by Christopher Cooper-Hohn, sold 7.01 million shares, or almost half its stake.
Visa's 22 percent plunge in the April-through-June quarter was the steepest since the three months ended September 2008.
