No April Fool’s Day Joke: Visa and MasterCard are Set to “Adjust” Interchange Rates on Tuesday (April 1st)March 31, 2008
Click here to read the New Europe – The European Weekly profile on Neelie Kroes, European Commissioner for Competition Policy
Call it what you want, but the attempt by Citigroup Inc. to restructure it’s credit card business could be nothing more than a scheme to protect the bank from its multi-billion dollar merchant interchange credit card liability. Just as MasterCard and Visa sought to distance itself from the interchange antitrust price-fixing complaint, the litigation is based on transgressions dating back years.
Just as with MasterCard and Visa’s new shareholders, the question for Citi is who will be left holding the interchange woes as part of the consumer restructuring? Is the consolidation of its worldwide credit card businesses, run by Steven Freiberg, CEO of Global Cards, an attempt to distance the bank of its alleged liabilities? If investors could pump billions into a questionable Visa Inc IPO, will anyone even notice what seems like a shell game to cast off what could end up drowning the bank?
This summer, the 1960’s television sitcom, “Get Smart” is making its theatrical release. What might this have to do with Citi’s restructuring? Everything. To paraphrase the ongoing joke in “Get Smart,” ah, the old A, B, C way to spin off their business trick. Today’s news of the restructuring of its credit card business might be followed by similar attempted liability escapes by other banking giants. From our prospective, this has more to do with the old adage of how to raise money and hedge your risks. As the story goes, there are three types of investments for betting on new oil wells. “Type A” – a sure thing – is where you know that oil is in the ground, it is seeping out of the surface — you are swimming in the stuff and that is where you personally invest along with your closest friends and family members. “Type B” – we’ll, we’re in Texas and there’s just got to be oil here – is when there might be oil, but you have to drill and explore; this is where you get the neighbors and distant friends to go along. And, “Type C” – throwing darts at a map – is where you haven’t a clue; this is where “investors” risk the capital. With a multi-billion dollar antitrust price-fixing class action threatening the core of Visa, MasterCard and its thousands of member banks’ merchant Interchange revenue stream, what better way to hedge your investment than to split off the impending liability?
Click here to read the March 27th Tom Hutchinson article in The Motley Fool on Visa.
- “But my opinion, Visa also faces two huge risks. The first is litigation; the company set aside $3 billion of the more than $17 billion raised on the IPO to cover pending lawsuits over the amount it charges merchants. It could wind up needing a lot more.”
Click here for more info on the British Retail Consortium’s comments regarding the newest Visa interchange fee investigation
Click here to read the Mach 26 Bloomberg article by John Rega. EU regulators are investigating whether Visa is involved with price-fixing its cross border fees.
“European Union antitrust regulators opened a probe of fees set by Visa Europe Ltd.”
The European Commission is looking into Visa Europe’s merchant interchange fees, this after the previous 5-year settlement agreement had lapsed in December, where Visa had agreed to lower interchange fees from 1.1% to .7% [the average rate in the U.S. is 1.7%, with an expected pricing change set for April 1st].
“EU Competition Commissioner Nellie Kroes has likened the fee to an unfair tax. The investigation opens the way for an overhaul of the industry after the EU agency ordered MasterCard to change how it sets its interchange fee Dec. 19.”