Visa stock retreated Tuesday after the U.S. Department of Justice filed an antitrust suit against the Dow Jones payments giant. Meanwhile, stocks for card companies are shaping up as their monthly metrics continue to improve.
The Justice Department on Tuesday sued Visa, alleging that it monopolized the U.S. debit-card market since 2012, The Wall Street Journal reported. Bloomberg first reported on the imminent lawsuit late Monday.
The DOJ claims that Visa illegally hindered rivals with incentive payments to keep financial technology firms to stay out of the market. Visa allegedly punished merchants with higher fees if they routed some transactions to other card networks. Meanwhile, Visa also harmed customers because card fees were passed on in the form of higher prices for goods and services.
The card giant holds about a 60% share of the debit payments market and earns about $7 billion annually in debit swipe fees, according to the DOJ.
"Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market," Attorney General Merrick Garland said. "Visa's unlawful conduct affects not just the price of one thing — but the price of nearly everything."
Visa Responds, Analysts React
Julie Rottenberg, Visa's General Counsel, said the Dow Jones giant is ready to defend itself in court, according to a statement shared with IBD.
"Today's lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving," Rottenberg wrote. "When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide. We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable. This lawsuit is meritless, and we will defend ourselves vigorously."
Citi on Tuesday said it now prefers Mastercard over Visa due to the anticipated lawsuit, The Fly reported. Analyst Andrew Schmidt said the DOJ investigation has been ongoing since 2021, so the news is not really a surprise. The firm believes the lawsuit will create a gradual regulatory overhang for Visa, and legal developments "may stretch out with variable outcomes." Schmidt wrote that Visa can likely work through this, but Citi switched its network preference to Mastercard as a result.
Citi maintained a buy rating and a 319 price target on Visa stock.
Credit Card Metrics Improve
Meanwhile, monthly credit card metrics continued to improve in August, according to a SeekingAlpha report over the weekend.
Net charge-offs declined for the month while delinquencies moved up by only 2 basis points, according to data from eight major companies including Capital One, American Express, JPMorgan, Citigroup, Bank of America, Discover, Synchrony and Bread Financial.
The average net charge-off rate, or percentage of credit card loans that banks consider uncollectible, fell for the fifth month in a row, sliding to 4.16% in August from 4.24% in July. However, net charge-off rates are still up from 3.45% last year and 3.58% five years ago, respectively.
The average delinquency rate rose to 3% in August from 2.98% in July. Still, delinquencies peaked in January and have seen six consecutive monthly declines. The average delinquency rate for August 2023 was 2.74%, and stood at 2.67% in August 2019 prior to the coronavirus pandemic.
Jefferies analyst John Hecht noted that year-over-year changes in net-charge offs and delinquencies is ebbing. Meanwhile, the payment rate of 31.72% has declined by about 24 basis points month-over-month and year-over-year. But those are still elevated compared with pre-pandemic historical levels of around 20.6%. Hecht said it is "a sign that the consumer remains resilient."
Visa, Payments Stocks
Visa stock slumped 5.4% Tuesday on the antitrust news. Shares of Visa trade below a 290.96 buy point for a 25-week flat base. The stock initially broke out on Sept. 17 and hit a record high of 293.07 before easing.
Visa is up 4.9% this year through Tuesday's close.
Mastercard stock is trading below a buy zone, with a 490 buy point for a cup base after its Sept. 12 breakout. MA stock jumped 14.3% in 2024 and is near its all-time high of 501.80 from Sept. 18.
Dow Jones component American Express looks the strongest of the bunch. AXP stock is extended above a flat base buy zone and has spiked 42% in 2024 to record highs.
Discover is consolidating below a 147.61 buy point, matching its all-time high.
Capital One shares have a 153.35 buy point for a consolidation. Shares tested the buy point on Sept. 20 but haven't been able to close above the entry.
PayPal Holdings is extended above a 70.66 entry for a consolidation and rallied 27.6% this year.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
