By Andrew R. Johnson
Visa Inc. (V) reported a $1.8 billion loss after taking an expected $4.1 billion charge in its fiscal third quarter for a pending settlement of merchant lawsuits over credit-card transaction fees.
Stripping out the charge and related tax benefit, Visa posted a 9% increase in quarterly profit as cardholder spending increased amid weakening economic conditions in the U.S. and abroad.
"We are pleased that we were able to come to a resolution in the merchant litigation which was acceptable to most parties while ensuring the long-term health of the U.S. payments industry," said Joseph Saunders, chairman and chief executive of Visa, in a statement.
The litigation charge, which the San Francisco-based company disclosed earlier this month, is to formally account for its share of the settlement, which would put to bed numerous lawsuits filed since 2005 against Visa, MasterCard Inc. (MA) and card-issuing banks over interchange fees merchants pay each time a customer pays with a credit card.
The settlement isn't expected to place financial strain on Visa, though, because the company has already socked away its portion of the payments in a litigation escrow. That escrow, which is funded by U.S. banks that issue its credit cards, has about $4.4 billion in it when including a recently announced deposit Visa planned to make.
MasterCard and the banks, including Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), are also responsible for portions of the settlement, under which the companies agreed to pay $6.6 billion.
Visa and MasterCard don't issue cards or lend to consumers; rather, they operate payments networks that help process transactions for banks.
While the companies have been under pressure in recent months because of regulation, litigation and stagnant economic growth, their stocks have been considered havens because they don't take on credit risk and have stable business models.
Visa's and MasterCard's shares are up more than 20% and 10%, respectively, this year.
Visa's shares closed down 0.4% at $122.20 Wednesday and were up 2.7% in after-hours trading.
Visa, the world's largest card-payments network, said it processed 13.1 billion transactions in the quarter, an increase of 1% from a year earlier. The dollar volume of payments cardholders made also increased 6% on a constant-dollar basis to $979 billion.
The growth rates for both categories have slowed significantly in recent months, an increasing concern for investors as they weigh the effects of new debit-card regulations that have given Visa's competitors an opportunity to steal share and recent economic data that have sparked worries about consumer spending.
The new debit-card regulations have helped Visa's competitors gain share because it requires banks to include multiple processing networks on their debit cards. Many of Visa's bank clients in the past had exclusive processing relationships with the company.
The company's transaction and payments volume growth helped drive an adjusted profit of $1.1 billion, or $1.56 per share, up from a profit of $1 billion, or $1.43 per share, a year earlier. Revenue increased 10% to $2.56 billion.
The adjusted results beat estimates of analysts polled by Thomson Reuters, who had expected on average earnings of $1.45 per share on $2.52 billion in revenue.
The company raised its guidance for 2012, and now expects annual adjusted earnings-per-share growth in the "low twenties," compared with an earlier forecast of growth in the "high teens to low twenties."
Visa's board also approved a new $1 billion share-repurchase program to last through July 2013. During the fiscal third quarter, the company repurchased about four million Class A shares for about $461 million.
Write to Andrew R. Johnson at email@example.com
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