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Visa shares fell as much as 3 per cent as it disclosed that it had received a civil investigative demand – the official request for information that is the first indication that a formal investigation is under way – from the US Department of Justice in March.
The disclosure came as Visa and MasterCard, two of the world’s largest payment processing networks, reported strong quarterly profits driven by a global shift by consumers from cash to card payments.
Programmes to encourage credit card usage over debit cards helped lift Visa’s second quarter operating revenues 14.8 per cent to $2.6bn compared with the same period a year ago.
Adjusted net income jumped 23 per cent to $1.1bn, with earnings of $1.60 a share coming in 10 cents better than analysts had forecast.
Speaking to investors on a conference call, Joseph Saunders, chief executive, raised full-year profit guidance and said earnings per share growth could be as high as the “low-twenties”, up from previous guidance in the “high-teens”.
“Our strong financial performance this quarter was fuelled by continued growth of US credit products, strong cross-border spending and expansion of Visa’s core business in international markets,” said Mr Saunders.
Regarding the justice department letter, Darrin Peeler, analyst at Barclays, said the intermediary companies who process payments between retailers and the card companies may have lobbied the government to look into Visa’s pricing adjustments. Visa has made changes to its payments business in response to new regulations that are designed to increase competition among providers.
Mr Saunders said that the company had received other requests of this nature before and that the process may take up to a year to resolve.
“My impression is Visa will get through this. They’ve been through multiple reviews before and have come out extraordinarily strong or well-positioned before,” Mr Peeler said.
Earlier on Wednesday, MasterCard said that its net income rose to $682m, or $5.36 a share, in the first three months of the year from $562m, or $4.29 a share, in the same period a year ago. The results beat analysts’ expectations.
“We had a good start to the year with solid first-quarter results driven by an increase in processed transactions, the highest quarterly growth rate since our initial public offering, as well as positive volume growth in all regions as consumers continue to adopt electronic payments,” said Ajay Banga, MasterCard’s president and chief executive.
Net revenues rose to $1.76bn from $1.5bn in the year-over-year quarter, but officials warned that growth would probably slow as the year progressed.
The extra day from a leap year and the US tax season helped results in the first three months, while growth was strong last year, making for tough comparisons as the year progresses.
Company officials nonetheless reiterated guidance that MasterCard could achieve a compound annual growth rate of 12 to 14 per cent in net revenues and at least 20 per cent in earnings per share this year and next.
Worldwide purchase volume during the first quarter was up 17 per cent on a local currency basis versus the first quarter of 2011 to $629bn. Processed transactions jumped 29 per cent in the quarter to 7.7bn and MasterCard branded cards issued reached 1.8bn.
The rise in cardholder spending was partially offset by an increase in rebates and incentives. Total operating expenses were $758m, up 14 per cent from the first quarter of 2011.
Gross dollar volume, a combination of purchases and cash withdrawals on cards, grew by 19 per cent in Europe in spite of the problems in the region. Growth rates exceeded 20 per cent in the Asia Pacific, central Europe, the Middle East and Africa.
Martina Hund-Mejean, chief financial officer, said MasterCard had gained market share in the US versus Visa, its larger rival, following the changes to regulations on transaction fees and processing.
Shares of MasterCard dropped 1 per cent to $451.45 during the regular session.