Analysts are concerned about the potential impact of new legislation on credit card stocks

by Elizabeth Harrow (eharrow@sir-inc.com)
6/23/2009 9:29 AM

Visa Inc. and MasterCard Incorporated

Credit card concerns Visa Inc. and MasterCard Incorporated were the subject of some cautious commentary this morning, as Reuters surveyed Citigroup analyst Donald Fandetti and Cowen & Co. analyst Moshe Katri regarding the potential effects of new legislation on the companies. As Congress moves to regulate interchange rates, both experts believe that Visa and Mastercard could potentially see ill effects on their bottom lines.

Visa and MasterCard themselves do not collect interchange fees, but the concern is that retailers and merchants will now be able to pay lower fees to banks issuing the cards. In turn, some analysts believe, those banks will force Visa and MasterCard to share the pain. "Longer term, I think it is a real risk for the model, but this could impact their stocks right now," commented Fandetti.

Representatives for both credit card companies have dismissed the potential threat of the legislation. Visa and MasterCard have pointed out that Australia previously chopped its interchange fees, and neither company's revenues were adversely impacted. However, warned Katri, "It's an overhang on these stocks, at least until we have some clarity."

V has shrugged off this skepticism in pre-market trading to tick fractionally higher. The shares have collected a gain of 16.8% in 2009, and they're currently positioned above support from their 20-week moving average.

Judging by Visa's open interest configuration, speculators expect the stock to surge another 14.3% by the time July-dated options expire. Peak front-month call open interest of 12,042 contracts lies at the deep out-of-the-money July 70 strike.

As for MA, the equity has added 0.5% ahead of the bell. The stock has recently blazed a path lower, though, breaching support from its 10-week and 20-week moving averages in the process.

Despite this lackluster price action, calls have become the option of choice on MA. The security has racked up an ISE 10-day call/put volume ratio of 2.05, with bullish bets more than doubling their bearish counterparts during the past two weeks.