HomeNewsVisa quarterly profit rises but regulations weigh

Visa quarterly profit rises but regulations weigh

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Visa Inc reported an increase in quarterly profit of more than 50%, but the company’s shares fell because of regulatory concerns and its failure to outpace Wall Street estimates as much as investors had come to expect.

The company’s shares fell about 2% in after-market trading.

“It was maybe not the blowout quarter some investors were expecting,” said Signal Hill analyst Mayank Tandon.

“I think it’s understandable that we’re seeing some profit-taking, given that the results were good but not great.”

The company also authorised a $1 billion share repurchase and said it expected net revenue to grow 11% to 15% in its coming fiscal 2011 year.

Chief executive Joseph Saunders said in an statement that Visa plans to continue investing to expand its business, despite a “very challenging business environment”.

Visa and rival MasterCard Inc do not lend at all and were relatively insulated from the massive credit losses that affected banks during the financial crisis.

But now they are facing increasing US regulatory scrutiny over their processing businesses.

The new US Dodd-Frank financial reform law will restrict the processing fees that Visa and MasterCard earn from debit card transactions.

This month, both companies also settled a Justice Department anti-trust lawsuit over their processing rules.

“There’s been so much fear that has been built into Visa and MasterCard in general . . . I think the concerns over Visa and the industry were overblown by investors,” said Jim Tierney, the chief investment officer of W.P. Stewart, which owns shares of both networks.

Visa’s shares fell more than 20% this past summer, as investors worried that the law would cut deeply into its future profits.

The shares have rebounded somewhat since Visa settled the lawsuit, but are still about 10% lower than before the law’s fee restriction provision was first introduced.

The debit card industry is also awaiting further rules from the Federal Reserve, which will define exactly how the law restricts processing.

Visa said on Wednesday it will have a better idea of how its future profits will be affected after seeing those rules.

But “investors had high expectations, they wanted more clarity,” said Evan Staples, equity analyst with First American Funds, which owns Visa shares.

“Some idea of what could or could not happen would have been more positive,” he said.

Visa, the world’s largest credit and debit card processing network, reported net income of $774 million, or $1,06 per share, on Wednesday for its fiscal fourth quarter, ended September 30.

That compared with $514 million, or 69 cents per share, a year earlier.

Analysts on average had expected Visa to earn 94 cents per share, according to Thomson.

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