Leading card-issuer American Express Company (NYSE:AXP) fell the most in a year amid the European Commission’s proposed move to cap interchange fees.
Morgan Stanley (NYSE:MS) and Credit Suisse analysts expressed concern about the profitability of the biggest U.S. credit-card issuer by customer purchases, following the European Commission’s proposed capping of the fees that debit card and credit card networks could charge retailers in the European Union.
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European Commission’s Proposition
The European Commission proposed limits on the fees that retailers in the European Union could be charged for debit card transactions to 0.2 percent per transaction, while the ceiling for credit card transactions is pegged at 0.3 percent.
According to a report in Financial Times, the draft European Commission plan would scale back a multibillion-euro revenue stream for EU banks.
The European Union’s move to cap the fees is aimed to put an end to the decade-long battle with payment groups such as Visa Inc (NYSE:V) Europe and Mastercard Inc (NYSE:MA).
The draft proposal also requires payment card schemes and the entities that process transactions to be legally separated. This would force remaking the business model for the main payment groups, according to Alex Barker of Financial Times.
Analysts Trim Amex Earnings
Following the European Union’s proposal, Morgan Stanley (NYSE:MS) has trimmed American Express earnings-per-share by about 3.7 percent, as the leading card issuer earns 11 percent of itsbusiness from Europe.
Credit Suisse analysts feel the EU proposal would hurt American Express Company (NYSE:AXP) more than the other card issuers Visa Inc (NYSE:V) and MasterCard, as they have already agreed to provisionally cap some fees.
Jefferies analyst Daniel Furtado also echoed a similar view, as he feels American Express’ annual earnings would be trimmed by about 11 cents following the EU proposal. Daniel, however, maintained a Hold rating on American Express Company (NYSE:AXP), as the analyst feels the card issuer would find ways to offset a portion of this loss, by raising interest rates or changing its fee structure.
American Express’ Comments on EU Proposal
American Express issued a statement today stating that the EU proposal would undergo extensive debate among many market participants. The statement clarifies that the discount rate American Express Company (NYSE:AXP) charges merchants would not be under the purview of the proposed EU regulation.
The large credit card issuer also clarified that the EU proposals would focus primarily on and cap the interchange fees charged by four-party payment systems, such as Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA).