Washington lawmakers are preparing to take a giant swipe at the $19 billion initial public offering of credit-card giant Visa, the largest-ever US IPO, just as it sets to launch next week.
Prompted by intense lobbying from the nation’s biggest retailers including Wal-Mart boss Lee Scott, legislators in the House recently introduced a bill that could drastically lower a little-known fee charged by credit-card companies every time a consumer uses a card.
The charge, known as the interchange fee, is billed to merchants and is typically set by Visa and MasterCard, the nation’s two largest credit-card companies, without any input from merchants.
The fee averages about 1.75 percent of the total purchase, according to Rep. John Conyers (D-Mich.).
Earlier this month, Conyers and Rep. Chris Cannon (R-Utah) introduced a bill, the “Credit Card Fair Fee Act of 2008,” that would set up a panel appointed by the Department of Justice and the Federal Trade Commission to set the fees. Retailers such as Wal-Mart and Target, which contributed heavily to the $42 billion of interchange fees paid last year, have been lobbying for the bill for years.
Similar bipartisan legislation is expected to be introduced in the Senate next month and Visa and MasterCard are said to have hired more than a dozen lobbyists to combat the bill.
If it passes, the bill could deal a $570 million blow to Visa’s annual revenues and cause its earnings per share to fall by as much as 30 percent from current estimates, according to an analysis circulating among several well-heeled hedge funds.
MasterCard, the nation’s second-largest credit card company, could see its annual revenue fall by $250 million and its earnings plummet by as much as 25 percent. Several investors have already shorted MasterCard’s stock in anticipation of the bill passing.
The giant banks that issue credit cards, including J.P. Morgan, Bank of America, Citigroup and Capital One, also stand to lose nearly $17 billion in annual revenue if the bill passes. Bank of America, which issues 14 percent of all Visas and MasterCards in the US, could lose as much as $1.6 billion in annual revenue if the interchange fees drop to around 1 percent, according to the analysis.
In its offering documents, Visa notes that any change in the interchange fee could have a “material adverse impact on our revenues, operating results, prospects for future growth and overall business,” but does not provide specifics.
Visa’s IPO, which is set to launch late next week, has been a beacon of hope in a market rocked by the subprime mortgage crisis.
The retailers and legislators are couching the new legislation as “consumer friendly,” which could increase its likelihood of passing.
“These are fees that most consumers don’t even know they are paying because Visa, MasterCard have tried to keep them secret,” said the National Retail Federation’s Senior Vice President Mallory Duncan last week. “The introduction of this legislation marks the beginning of the end of credit-card company rip-offs.”
Cannon has said that consumers spend as much as $300 per family each year on interchange fees, which are passed onto them by merchants in the form of higher prices.