CreditCardsAct

By Peter Eichenbaum

(Bloomberg) – Mster Card Inc., the world’s second- biggest payment-card network, posted profit that beat analysts’ estimates as the company raised fees, slashed expenses and processed more transactions. The stock rose as much as 11 percent in New York trading.

Second-quarter net income was $349 million, or $2.67 a share, compared with a loss of $747 million, or $5.70, a year earlier, the Purchase, New York-based company said today in a statement. Excluding legal costs last year, total profit climbed 26 percent.

MasterCard and No. 1 network VISA Inc have been insulated from drops in consumer spending caused by the recession as shoppers supplant cash and checks with cards. The switch is a long-term, secular trend, Chief Executive Officer Rober Sleander told investors today, and transactions processed rose 7.9 percent in the quarter. Visa said yesterday its quarterly profit jumped 73 percent, aided by more use of debit cards.

“They’re doing a terrific job of managing their way through a downturn,” said William Selby, managing director at GAMCO Investors Inc., during a Bloomberg Television interview about both card networks. “They have tremendous earnings power coming out of the recession in 2010 or 2011 — but you shouldn’t expect a return to the type of spending we had two or three years ago.” Gamco affiliates have owned MasterCard shares.

MasterCard advanced $13.51, or 7.2 percent, to $202.06 at 11:47 a.m. in New York Stock Exchange composite trading, adding to a 32 percent gain this year through yesterday. The stock jumped as much as $20.72, for the biggest percentage gain since February. San Francisco-based Visa rose 3.5 percent to $69.10.

Splits and Dividend

MasterCard has no plans to split its stock — the fifth most-expensive on the Standard & Poor’s 500 Index — or to raise the dividend, Selander said today in a telephone interview. Most of the shareholders are institutional investors who are more interested in long-term growth than generating current income from the shares, Selander said.

Revenue advanced 2.7 percent to $1.3 billion and total operating expenses dropped 13 percent excluding special items, beating analysts’ predictions on both counts. Operating margin jumped 10.2 percentage points to 43.5 percent, not including unusual costs. Master Card increased fees, generating about 1.35 cents extra per transaction, JPMorgan Chase & Co. has estimated.

Collectively, those helped generate profit that beat the $2.42-a-share consensus of analysts surveyed by Bloomberg.

Recession’s Impact

Visa’s fiscal third-quarter profit increased to $729 million, or 97 cents a share, from $422 million, or 51 cents, a year earlier. Visa said yesterday it processed 8 percent more transactions through June 30.

Visa and MasterCard aren’t affected directly by credit-card defaults because they process transactions without taking on the risk associated with making loans. Credit-card issuers have reported losses or declining profit as surging U.S. unemployment reduced spending and made it harder for customers to repay debt. The jobless rate reached 9.5 percent last month, the highest since 1983.

Cards circulating under the MasterCard brand climbed 1.2 percent to 959 million, the company said.

Consumers may step up their use of debit because banks are cutting off credit cards to curb defaults, according to a July 13 study by the Tower Group Inc. Debit grew to 48 percent of combined card use last year for Visa and MasterCard, compared with 22 percent in 1999, Tower said.

Credit, charge, debit and other cards will handle 54 percent of U.S. purchase transactions by 2012, compared with less than half in 2007, according to the Nilson Report, an industry newsletter based in Carpinteria, California.

The two card networks are battling for market share, with Visa winning more than half of a $59 billion debit-card portfolio after New York-based JPMorgan Chase, ranked third in debit-card volume by Nilson, shifted more business from MasterCard, two people familiar with the matter said May 22.

“Every day is a street fight,” Selander said during the conference call with analysts.