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The Zacks Analyst Blog Highlights: American Express, Discover Financial Services, MasterCard, Visa and Interactive Brokers Group

AXP DFS MA V IBKR

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For Immediate Release

Chicago, IL – October 4, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include American Express Co. (AXP - Analyst Report), Discover Financial Services (DFS - Analyst Report), MasterCard Inc. (MA - Analyst Report), Visa Inc. (V - Analyst Report) and Interactive Brokers Group Inc.’s (IBKR - Analyst Report).

 

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Here are highlights from Wednesday’s Analyst Blog:

 

AmEx Hit by $112.5M in Charges

 

US regulators slammed American Express Co. (AXP - Analyst Report) (AmEx) with charges worth $112.5 million as a result of a legal settlement that found the company guilty of charging undue fines for late payments on the cards since 2003.

The company has also been held for breaching its practices related to billing, marketing and debt collection of its credit cards. AmEx falsely assured the customers that their debt would be completely scrapped once a partial debt was paid. However, the consumers’ debt on the AmEx credit cards continued to escalate and the company further denied new cards to such customers.

Moreover, customers who registered for the company’s “Blue Sky” credit cards were promised $300 and additional bonus points, although this money was never paid. AmEx also failed to comply with the consumer-protection laws.

As a result of claims made by the consumers, a multi-agency investigation was conducted by prime US regulators including the Federal Reserve, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Utah Department of Financial Institutions. These regulators found AmEx guilty of all the accusations charged by the consumers.

Accordingly, AmEx has accepted the allegations and agreed to settle the lawsuit by paying back $85 million to 250,000 consumers and the remaining $27.5 million as civil damages. The refund to consumers is expected by March 2013.

The settlement also requires the company to make additional modifications to its business policies that protect the consumer rights. Additionally, AmEx will provide a pre-approved credit card and $100 to the consumers who were previously denied debt dismissal and issue of new cards.

The the US Consumer Protection Act enacted in 2010 has axed many banks and credit card companies who were found guilty of practicing faulty business policies, which in turn, failed to recognize the consumers’ interest and led them to a debt trap. Last week, Discover Financial Services (DFS - Analyst Report) was charged with a consumer-protection settlement of $200 million to over 3.5 million consumers along with $14 million as civil fines to regulators.

In July this year, MasterCard Inc. (MA - Analyst Report) and Visa Inc. (V - Analyst Report) also entered into a formal agreement with the federal court of Brooklyn to settle a multi-state US merchant lawsuit. About 7 million merchants or retailers had accused these card companies in 2005 of fixing prices and unduly increasing processing or interchange fees on transactions made through debit and credit cards.

Accordingly, Visa and MasterCard have agreed to pay about $6.6 billion to the retailers, of which Visa has incurred cash settlement charge of $4.4 billion. Meanwhile, MasterCard recorded a liability of $790 million against the litigation settlement.

While the new financial reforms are coming as a relief to merchants and consumers in one way or the other, going ahead, these regulations are liable to weigh on the margins of the card giants.

AmEx currently retains a Zacks #3 Rank, which translates into a short-term Hold rating and long-term Neutral recommendation on the stock.

 

Interactive’s September Metrics Rise

 

Interactive Brokers Group Inc.’s (IBKR - Analyst Report) Electronic Brokerage segment announced an increase in brokerage metrics for the month of September 2012. The segment clears and settles trades globally for both individual and institutional clients.

Interactive’s total customer Daily Average Revenue Trades (DARTs) declined 19.6% from September 2011 but increased 15.2% from August 2012 to 410,000. However, total customer accounts improved 11.6% from the prior-year month and 0.8% from the prior month to 205,300.

Interactive recorded Cleared Customer DARTs of 390,000, declining 17.7% from September 2011 but improving 15.0% from August 2012. Further, on an annualized basis, the company reported Cleared Average DART per customer account of 479,000, plunging 26.8% from 654,000 in the comparable month last year but jumped 14.0% from 420,000 in the previous month.

Moreover, Interactive’s total options contracts plummeted 25.8% from the prior-year month but inched up 0.5% from the prior month to 19,645 in the month under review. Futures contracts totaled 6,807, decreasing 23.3% from 8,878 in September 2011 and 5.8% from 7,223 in August 2012.

Interactive also reported period-end statistics for customer equity, customer credit balances and customer margin loan balances. For the period ended September 2012, customer equity stood at $31.5 billion, augmenting 35.2% year over year and 3.6% sequentially.

 

 

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