Big Banks And Credit Card Companies are Wrapped Up in Antitrust Litigation

Friday, January 13th, 2012

There’s a big lawsuit underway, involving 5 million retailers vs. MasterCard, Visa and some thirteen big commercial banks. A few of the banks entangled in the private antitrust litigation are Capital One Financial, Bank of America, HSBC, Wells Fargo, Citigroup, U.S. Bankcorp, JPMorgan Cahse, Fifth Third Bankcorp, Barclays, PNC Financial and SunTrust Banks. While this has gone largely unnoticed by the bulk of investors and analysts who dedicate a portion of their time to following those companies, there exists a very real possibility that the pending case may cost banks several billion dollars in the next several months.

There have been widely varying estimates made regarding the price tag on a settlement of the antitrust case, ranging from several billion dollars to several hundred billion. According to research conducted by Deutsche Bank, the financial companies are equally concerned about the risk that a settlement or even a judge’s ruling may result in the current 2% interchange that banks and credit card companies collect from retailers per credit card transaction being slashed, perhaps even as low as 0.5%. Rod Bourgeois, and analyst at investment management firm Sanford Bernstein revealed that 0.5% is the current interchange fee rate in Australia and it is higher than what is charged in the EU, which is 0.3%.

Such a change would have even a more devastating impact to the banking industry’s revenue than the Durbin Amendment which went into effect in October 2011 and caps the interchange fees that banks can charge merchants for debit card transactions.

Matt O’Connor, a Deutche Bank analyst, recently released a report which estimated that US Bankcorp would stand to lose nearly $1.2 billion from their 2012 revenues should the credit card interchange fee be reduced by 75%. This is nearly four times what O’Connor estimates that the bank has lost in revenue as a result of Durbin. O’Connor went on to estimate the losses of several other of the large retail banks throughout 2012 should the credit card interchange fee be slashed to 0.5%: Citigroup would lose nearly $3.02 billion; Bank of America stands to lose some $3.68 billion; and JPMorgan Chase is looking at a revenue loss of approximately $5.38 billion, as per O’Connor’s estimate.

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