| NEW YORK
NEW YORK Visa Inc (V.N), the world's largest payment network, said on Tuesday that U.S. legislation curbing certain practices by credit card companies would force the industry to restructure as revenue expectations shrink.
"It's going to cause the whole industry to rethink itself," Visa's Chief Executive Joseph Saunders said in an interview. "It will result in less credit being offered to less people."
The bill, due to go into effect in February 2010, will restrict the ability of credit card issuers' to raise interest rates on cardholders' existing balances, to charge certain fees, and to impose penalties on consumers that the government deemed unreasonable.
Citigroup Inc (C.N), Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), American Express Co (AXP.N), Capital One Financial Corp (COF.N), and Discover Financial Services (DFS.N) have over 80 percent of the U.S. credit card industry.
The companies enjoyed hefty gains in recent years due to an explosion in credit, but now they are losing billions as debt-burdened Americans lose their jobs and default on credit card payments.
Americans owed more than $945 billion in credit card debt in March. And even though that has declined from $962 billion in December, credit card indebtedness is still up about 25 percent over a decade ago.
Visa is partially insulated from the global credit crisis because it processes transactions rather than lending funds. However, its revenue growth has slowed along with transaction volume as consumers try to reduce their indebtedness.
Saunders said any slowdown in credit card use would be offset by a secular change from cash and checks to electronic payments, and by increased use of debit cards. He said debit cards represented "a significant part of the company's future".
Spending on debit cards surpassed credit volume in the United States in the first three months of 2009 for the first time in history.
Saunders said Visa does not expect to change its earnings or revenue forecast due to the legislation.
"It doesn't look like we are going to fall off a cliff. It isn't a tsunami. It is going to be an issue that we are going to have to deal with," he said.
"I don't think it is going to particularly change our guidance or our notion of where we are going. Of course, if things never changed we would have had more transactions, but I don't think that this does anything to slowdown the momentum of the change."
Visa expects annual net revenue growth of high single digits in 2009 and of between 11 to 15 percent in 2010. It also forecast annual adjusted diluted Class A common stock earnings per share will grow over 20 percent.
SLOW ECONOMIC RECOVERY
Saunders said he saw some signs of economic improvement in the United States, particularly stronger consumer confidence. but he said he did not expect a speedy recovery. He said the economy would be more solid in the first half of 2010.
"People are not doing things that they have normally done because they are concerned about employment, they are concerned about if they are prepared in the event that something happens," Saunders said, but added that "at some point in time, people will want to enjoy things they enjoyed in the past."
Visa posted better-than-expected quarterly earnings in April as the processing network company increased prices, slashed expenses and consumers used debit cards more.
However, Saunders reiterated Visa's net income will come under pressure in the current quarter, as the company faces shrinking cross-border transactions, and a stronger dollar hurts revenue overseas.
Earnings should start to improve by the second half of 2009, as foreign exchange headwinds ease.
The company could also benefit as JPMorgan Chase & Co (JPM.N) is expected to shift part of its huge Washington Mutual debit card portfolio to Visa's network from MasterCard Inc (MA.N).
"I think that as a result of this our debit card business will grow," Saunders said.
(Reporting by Juan Lagorio; Editing by Toni Reinhold, Bernard Orr)