Visa and Mastercard: The Mortgage Brokers of the Credit Card Industry

by: Sean Miller April 13, 2008 | about stocks: MA / V    

Sean Miller

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There is definitely a shift from cash to credit cards worldwide, just as there was a shift from renting to home ownership based on the wide availability of mortgages, but is only a matter of time before this comes to a screeching halt.

Visa (V) and MasterCard (MA) get paid a fee which is equal to a percentage of each transaction, and have no credit risk. Mortgage brokers have no direct credit risk either and they get an upfront fee when the transaction closes. If a borrower defaults, mortgage brokers do not lose a penny. The losers are those who bought the securitized mortgages. Mortgage brokers were doing great until borrowers began to default. The rating agencies downgraded the debt, and now, it is virtually impossible to securitize pools of mortgages. There are still plenty of houses for sale, but the number of transactions has plummeted, and the unemployment rate among mortgage brokers has skyrocketed.

Credit card debt is securitized just like mortgages, sliced into tranches, rated by agencies and sold to investors. At least mortgages are backed by assets like homes; credit cards are only backed by a borrower's promise of repayment. Credit card issuers are beginning to see a significant jump in defaults and late payments. Rating agencies, known for missing trends until it is too late, are even starting to catch on. With soaring credit risk, debt will be downgraded, and as with mortgages, the market for securitization will freeze up.

So why are MasterCard and Visa trading near historical highs?

Here are a few things I have come up with:

  • Momentum traders have piled on (a fickle group)
  • High short interest in MasterCard; As a recent IPO, Visa can't be shorted yet, so MasterCard may be a Visa hedge
  • Q1 earnings should be solid (but I maintain that guidance will be weak)

Disclosure: none

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This article has 111 comments:

  •  
    Apr 13 12:46 PM
    I bought into V and MA precisely because of the recession in the U.S.-- V and MA both do business in plenty of countries where the economy isn't anywhere as bad as the U.S. Half of V's revenue comes from overseas, by the way.
    Reply | Link to Comment
  •  
    Apr 13 01:57 PM
    What about the fact that although mortgage brokers are unemployed and mortgage companies are bankrupt...Mastercard had risen to heights unimaginable????? Even though the economy is weak people still use credit cards. I generally pay with my debit or credit cards to:

    1. Keep all records of my transactions...you dont have to save reciepts of all the expenses as you would if you used cash. I did my taxes and used my online debit/credit card to figure out all my expenses.

    2. I get free sky miles when i use the credit card/ debit card

    3. My wallet does not feel bulky with all the bills.

    4. You can purchase or pay for most of bills online....which require a credit or debit card.

    5. All the change you recieve will not wiegh you pockets down

    Credit cards and debit cards are essential to everyday life, no matter how badd the economy or unemloyment are. The only potential risk or downside is if there is regulation on number of time you can use your credit cards. And i dont see that happening.

    I see the olympics as a big opportunity for visa to take china and asia by storm, which will likely increase the number of transaction by at least 20-25% in the next 5 year.

    As far as the market cap:
    mastercard---- 25% of market------market cap of 30 billion
    visa----------- 60% of market------market cap of 54 billion

    shares of mastercard continues to rise and has not slowed down, and I predict there market cap will be close to 45+ billion in several years....
    I predict visa's market cap will be 125+ bilion in 1-2 years with shares somewhere between $175.00- $200.00.

    Buy VISA----Life takes Visa and so should you.
    Reply | Link to Comment
  •  
    Apr 13 07:08 PM
    More than likely, many owners of MA sold to purchase V in expectation of the same run-up in value... Just a guess, but if V doesn't move up quickly, there may be a small sell-off.. That'd probably a good time for a longer term investor to buy V....

    Thx jegan...
    Reply | Link to Comment
  •  
    Apr 14 12:23 AM
    Sean- You have this entirely wrong (as usual). Why are you posting an article without a bio? What do you do for a living? Are you even in the securities business? Are you a registered rep- (if so, with what firm)?? Do you even have a position? Why exactly are you slamming the stock repeatedly?


    Who are you Adesai? Why are you always playing devil's advocate here? What is your connection to Sean and Wez and Joanne?

    There is something entirely out of line happening on this site- I am beginning to think that the SEC should probably be taking a closer look at the posters on this site.
    Reply | Link to Comment
  •  
    Apr 14 12:41 AM
    FOR CONCERNED INVESTORS-

    I am an investor in Visa and am DEEPLY concerned about the dissemination of information taking place on this website (Seeking Alpha). I am going to take a moment to explain the ramifications of the bias slant that this site is taking as opposed to verses that of a yahoo or google finance.

    We all know that the posts on Yahoo and Google are mainly children and know better than to take such nonsense seriously. Here is where the problem begins to differ. Seeking Alpha 'articles' are actually appearing on news feeds at major online brokerage such as Etrade. Brokerage customers of Etrade may mistake such articles as legitimate news when in fact no legitimate news organization would allow people to anonymously self-post 'slam' pieces.

    My name is Jonathan - and I can be reached at 212-709-8276- I'm here in NYC and work on Wall St. I am going to be talking to Etrade, Seeking Alpha, and if necessary the regulators about what is going on here. If you have information on the posters of these articles I need you to contact me immediately as I smell a fish.

    For those of you that think this is a joke- it is not- this is VERY serious stuff. A significant reason for the Bear Sterns meltdown was people that had a short interest. The SEC is now investigated firms and individuals that shorted Lehman as well.

    I have no problem with people writing negative articles about a stock. I do, however, draw the line when those articles appear on major brokerage news feeds as legitimate and newsworthy as anonymous posts. Current market conditions dictate that perception is very important and making statements anonymously that Visa is "The mortgage broker of the credit card industry' will influence people to sell the stock. That is fine- but without identifying yourself - and your level of experience as a basis for making such a claim- and your relationship (if any) to a Finra/NYSE firm, or whether or not you have a postion in the stock itself- you are doing a disservice to the investing public. Furthermore, your actions and those of your Seeking Alpha cohorts are, in my opinion, unethical, and possibly illegal.

    As stated earlier- please contact me if you have more information on the individuals posting on this site about V.

    Jonathan
    Reply | Link to Comment
  •  
    Apr 14 01:21 AM
    Greetings Comrade Sean, thank you for pointing out all the flaws in the free market economy where foolish capitalists think they can make money supplying goods or services to consumers who are willing to pay for those conveniences based upon supply and demand. I still cannot understand why Mother Russia is no longer under communist rule and why Red China wants a part of that V action... do you think it is time to prepare for the worst? Did you stockpile the cabbage? Chicken Little has nothing on you.
    Reply | Link to Comment
  •  
    Apr 14 02:16 AM
    Jonathan, great point. The short sellers destroyed Bear Sterns, a thriving house with appreciating assets! Bear's business of collateralizing mortgages was growing each month. Those short sellers.

    Ok, now reality. JPM overpaid for Bear, and they did it to get nice deals at the NY fed desk, when they need to bring some used car deeds in exchange for Treasuries. Bear's business is finished. No mortgages will be collateralized. Your bluster is a disservice to investors. Sean's article is helpful. He is correct and stated his reasons. If you disagree, then convince me otherwise. The SEC is more concerned with bucket shop operators like you than Seeking Alpha bloggers. You have other people's retirement accounts, Seeking Alpha only has the weight of its bloggers opinions. Go chase momentum with other people's money and convince yourself that you are not a lemming, but an investor.
    Reply | Link to Comment
  •  
    Apr 14 03:37 AM
    I am not interested in arguing with Individual posters Calvino- and you have missed the point- i have no problems with short sellers- I have a problem with market manipulation. It seems as every time I try to defend V on this site I get a personal insult.

    As stated before- if anyone knows the identity of the authors of these articles- let me know.
    Reply | Link to Comment
  •  
    Apr 14 03:49 AM
    I did have one more question for you Calvino as you are defending Sean- what is your interest in defending him?

    What is your interest in V- are you an investor? Are you in the business? Why the personal attack?

    Why is it whenever someone is gettting close to the truth on this site- someone like you or Wez starts trying to discredit people?

    Are you actually using different handles? Are you Wez?

    If you are going to step up and start making accusations then why don't you tell us who you are and where you work and what you do and what you have at stake in this company.

    I am an investor- have a few thousand shares- and trade a few thousand more daily- I have something at stake- what do you have at stake other than coming to the rescue of your boyfriend?
    Reply | Link to Comment
  •  
    Apr 14 07:22 AM
    The more seeking alpha hammer V & MA the more they go up .There is no credibilirt in this site.Look like they are out of touch.
    Reply | Link to Comment
  •  
    Apr 14 07:45 AM
    hey buyv...with the amount ov V stock you have...when you do your day trading,do you trade all of your stock or just part of it? I'm new to this and just trying to do my DD on reading up on this stock and how certain stock holders do their thing!
    thanks! Joey

    On Apr 14 12:41 AM buyv wrote:

    > FOR CONCERNED INVESTORS-
    >
    > I am an investor in Visa and am DEEPLY concerned about the dissemination
    > of information taking place on this website (Seeking Alpha). I am
    > going to take a moment to explain the ramifications of the bias slant
    > that this site is taking as opposed to verses that of a yahoo or
    > google finance.
    >
    > We all know that the posts on Yahoo and Google are mainly children
    > and know better than to take such nonsense seriously. Here is where
    > the problem begins to differ. Seeking Alpha 'articles' are actually
    > appearing on news feeds at major online brokerage such as Etrade.
    > Brokerage customers of Etrade may mistake such articles as legitimate
    > news when in fact no legitimate news organization would allow people
    > to anonymously self-post 'slam' pieces.
    >
    > My name is Jonathan - and I can be reached at 212-709-8276- I'm here
    > in NYC and work on Wall St. I am going to be talking to Etrade, Seeking
    > Alpha, and if necessary the regulators about what is going on here.
    > If you have information on the posters of these articles I need you
    > to contact me immediately as I smell a fish.
    >
    > For those of you that think this is a joke- it is not- this is VERY
    > serious stuff. A significant reason for the Bear Sterns meltdown
    > was people that had a short interest. The SEC is now investigated
    > firms and individuals that shorted Lehman as well.
    >
    > I have no problem with people writing negative articles about a stock.
    > I do, however, draw the line when those articles appear on major
    > brokerage news feeds as legitimate and newsworthy as anonymous posts.
    > Current market conditions dictate that perception is very important
    > and making statements anonymously that Visa is "The mortgage broker
    > of the credit card industry' will influence people to sell the stock.
    > That is fine- but without identifying yourself - and your level of
    > experience as a basis for making such a claim- and your relationship
    > (if any) to a Finra/NYSE firm, or whether or not you have a postion
    > in the stock itself- you are doing a disservice to the investing
    > public. Furthermore, your actions and those of your Seeking Alpha
    > cohorts are, in my opinion, unethical, and possibly illegal.
    >
    > As stated earlier- please contact me if you have more information
    > on the individuals posting on this site about V.
    >
    > Jonathan
    Reply | Link to Comment
  •  
    Apr 14 08:09 AM
    buyv: your efforts are misdirected. my commentary does not move stocks. hedge funds and analysts might, but not me. serious investors who control lots of money do their own research rather tha taking tips from occasional bloggers like me. regarding mastercard and visa, it almost impossible to find an analyst with anything negative to say, so my position is not a popular one. i believe the market is in a downtrend so i look for stocks that are overvalued. both ma and v have high p/e ratios and are in a sector that is deteriorating, credit. if you think that the shorts put bear stearns out of business, you are wrong. bear took on way too much risk and had a margin call. by their own admission, they were undercapitalized by $90-100 billion. I blog when i see something that does not make sense. you can blog too if you want your opinion to be heard. I do not have a following of investors or control money, and i sincerely doubt that my posts could move markets. blogging is about free speech. regarding ma and v, i am either right or wrong, and that will be determined on their earnings conference calls I have no inside information, just logic as outlined above. regarding the SEC, you might find that they have more important things to investigate!
    Reply | Link to Comment
  •  
    Apr 14 08:25 AM
    Instead of piling on with the rest of the CNBC touts, why not single out COF ? (A dog that must fall) ...Despite the short term gyrations of V, despite the always-complaining retailers who have the temerity to blame V for high fees, and despite the way-overbought price of MA, V is a long-term winner, just has to be.
    Why don't you useless prognosticators find another stock to pound, and get off V ? Must you "financial writers" always have a herd mentality ? Who needs any of you ?
    Reply | Link to Comment
  •  
    Apr 14 08:26 AM
    Sean- why not just answer the question? Why are you writing a slanted article without letting us know who you are?

    Reply | Link to Comment
  •  
    Apr 14 08:31 AM
    Another Legitimate Source: Briefing.com


    V, (Trade) has been initiated by Keefe Bruyette as a outperform at 80.0.


    Visa Started At Outperform By Keefe, Bruyette & Woods >V

    Funny, the analysts continue to go long on this stock- and yet total neophytes continue to pound it.

    As far as the guy that asked about day trading- I do not give investment advice- but wish you the best of luck.
    Reply | Link to Comment
  •  
    Apr 14 08:48 AM

    Understandable. thanks!

    On Apr 14 08:31 AM buyv wrote:

    > Another Legitimate Source: Briefing.com
    >
    >
    > V, (Trade) has been initiated by Keefe Bruyette as a outperform at
    > 80.0.
    >
    >
    > Visa Started At Outperform By Keefe, Bruyette & Woods >V
    >
    > Funny, the analysts continue to go long on this stock- and yet total
    > neophytes continue to pound it.
    >
    > As far as the guy that asked about day trading- I do not give investment
    > advice- but wish you the best of luck.
    Reply | Link to Comment
  •  
    Apr 14 09:16 AM
    Another one- Cowen and Co- TODAY! (Source- Briefing.com)


    V, (Trade) has been initiated by Cowen & Co as a outperform.
    Reply | Link to Comment
  •  
    Apr 14 09:27 AM
    BuyV,

    I am a MD (medical doctor) who has about 5,500+ shares in V. I have been in the stock market for about 8 years ON and OFF. This is the largest investment i have made into a particular stock and i want to make sure that I hear both sides of the story- as i do not want to falter. Although positive criticism is good I would like to hear the downside to a stock to keep me on my toes.

    I do believe this is a good stock with good brand name recognition- and huge potential for growth... hence the reason for the large investement in this stock. So I do have a vested interest in this stock. Do i believe that there has been too many shares issued--YES. Do I believe that this poses a risk--YES. Do i believe this stock may hit $150+ -- YES. Do i know everthing about the stock market and this stock--NO. Hence the reason why I am on this site writing and reading all the blogs.
    Reply | Link to Comment
  •  
    Apr 14 09:29 AM
    I do appreciate your post BuyV, and look forward to reading.
    Reply | Link to Comment
  •  
    Apr 14 12:54 PM
    Market manipulation runs both ways Johnny. When a herd of money managers pile into, let's say Netsuite, or VMware, and run it up a pole playing Ponzi.
    Reply | Link to Comment
  •  
    Apr 14 01:17 PM
    I guess it is not market manipulation when so called analysts and talking heads on CNBC/Bloomberg spread push the stocks they hold or spread buyout rumors to pump the stock...
    Reply | Link to Comment
  •  
    Apr 14 03:33 PM
    My bona fides: Prior to retiring many years ago after 35 yrs at a major NYSE firm, I was a corporate officer and an expert witness in NASD complaints. I was a registered rep, a NYSE requirement at the time, although it was not my function. You can see a very limited disclosure of the author.

    I agree with the point of view of Adesai and the risks are disclosed in V's prospectus. I disagree with the emphasis on some of the points in the author's article. But it is not misleading. If there is a problem, it would be with the "talking heads" on CNBC, FBN, etc.

    My other disclosure---I bought V in the offering, the 1st time I wanted and was allowed to participate in an IPO. Unlike the good doctor, I could only get a few shares.
    Reply | Link to Comment
  •  
    Apr 14 04:43 PM
    buyv/jonathan,
    cool buddy. cool down.

    i am a huge MA and V fan.

    MA they told it is damn expensive when it was 75. they told it is super expensive when it was 120 and very very expensive at 160. Then MA came and blew the brains out with their earnings and went to 190.

    Then the daytraders abused MA like crazy making sure it never went up even after smash and burn earnings last qtr. Then V ipo came and everybody realised MA is cheap and MA climbed up.

    Same with V. I just spent 1585 dollars fixing my car and guess what I used V. I dont have cash to pay that much in my wallet. As simple as that. I filled my tank. I used MA. My MA card gives more cashback on gas filings.

    I would suggest loading up on V May 75 calls just before earnings and MA 240 to 250 calls just before earnings.

    And meanwhile buyv/jonathan, you got to cool down. The more -ve news on MA and V, the better. Because fools wont buy these solid companies after reading these kind of factless articles and then MA and V will rocket up as usual.

    And I want to add fslr and pcln to make it awesome four. And also now is the time to load up RIMM. A > 100% growth company deserves much better forward p/e rather than the present 25.
    Reply | Link to Comment
  •  
    Apr 14 05:08 PM
    >>>>>Hi... short interest in MasterCard; As a recent IPO, Visa can't be shorted yet, so MasterCard may be a Visa hedge

    I think you got it wrong. V can be shorted and I have shorted it like 2 weeks after ipo. Of late, I dont think anybody dare short V including myself.

    Note that although I like MA and V, I never fight the market. Both are my core holdings but I also trade them based on market movements.

    Also I am bearish on Goog, Aapl, spwr.
    Reply | Link to Comment
  •  
    Apr 14 05:31 PM
    My last post until V hits $75. Per share (meaning you will be hearing from me within a month)
    At one time I was actually impressed with some of the commentaries from Trading Alpha. All of the good will dissipated as I continued to read one slam of V after another, mostly by people that chose to post anonymously. Most of you know why this represents a problem, but for those of you that think I am overreacting I will share one last opinion with you; mine. New investors see ‘reports’ such as those generated by Trading Alpha on their online brokerage news feeds and assume that the reports are reputable. As such, decisions are influenced in part by such commentary. Trading Alpha, unlike Yahoo or Google Finance comes in as a ‘news feed’. I am in favor of free speech and free opinions. What I am not in favor of are slam pieces that could influence investors by people that fail to disclose what education, experience, or basis they have for making such opinions, good or bad. Furthermore, anyone conducting an analysis of a stock (however crude) should disclose whether they are long or short, have a position or not, or work for someone that has taken a position. That is my concern. Perhaps I am overreacting, but in light of the fact that severe damage has been done to several firms on Wall Street by dissemination of misinformation I am hyper-alert. Yes, Bear dug their own grave but they didn’t need someone to push them in it. In the post 9/11 environment it is not a good idea to tell people that an airport might be bombed either. Having provided my two cents- I am not going to waste any more time on this site as I feel it is lacking in credibility. I will, however, be glad to come back and remind the naysayers that they were wrong all along- when the stock hits $75. Good luck for those of you taking advice or lending credence to anything the ‘authors’ of these articles have to say.

    Here are three REPUTABLE Analyst opinions- all within the last few days-








    Cowen & Co initiates Outperform. Cowen initiates V with an Outperform saying they expect the co to grow net revenues and EPS by at least 7%-8% and 20%+ during the next 2-3 years while gradually expanding its ROIC. The firm says the co's growth prospects as well as its attractive business model stand out among its business services peers. During the next 3-5 years, they expect Visa to benefit from strong ongoing secular growth trends in the payments sector as expanding usage of electronic forms of payments (credit and debit cards) continues to displace cash and checks.

    Visa Started At Outperform By Keefe, Bruyette & Woods >V Dow Jones Newswires
    Visa Started At Buy By Stifel Nicolaus >V Dow Jones Newswires
    Last – and this should be obvious to those of you reading this post- the authors and their ‘friends’ have nothing at stake here which supports my argument. Of course they have no concern about any potential harm they may do to the investing public by spreading distortion- as they have nothing to lose.
    Rember, do your homework- read the prospectus- learn about the company- and I am confident that if you are a V investor, you will do well short and long term.
    Reply | Link to Comment
  •  
    Apr 14 05:39 PM
    Last but not least- I owe you an apology Adesai for lumping you in- and wish you the best of luck- and Green Capitalist- I will take your advice and cool off - I am going to step back and let the facts do the talking. Hopefully by the time V reports on the 28th Wall St will have dealt with the bulk of negative earnings reports and we will be see a spike we are already graced by the fact that V is not reporting this week. Good luck to you all and see you at $75$
    Reply | Link to Comment
  •  
    Apr 14 05:47 PM
    I own 2,900 shares of V @$63. This is a long-term hold for me and I am unconcerned with the daily price fluctuations of V. I have to agree with buyv, though. These seekingalpha blogs are starting to pop up all over the place. The casual reader may assume that they are articles written by bona fide financial journalists when in fact they are not.

    99% of the 'writers' posting articles here are financial neophytes at best. Seekingalpha writers, if you are compelled to spew your largely worthless stock opinions, please direct them at your comatose grandmother or your dog (or both). Sean, I read your bio. I guess you must have been quite the heavy hitter in the M&A world (the last time I checked, the word acquisitions had a 'C' in it). I may not be an Einstein, but I can correctly spell my profession.
    Reply | Link to Comment
  •  
    Apr 14 06:54 PM
    buyv, other ma&v fans,
    i think we are all missing the point. we need more people who can bash ma and v.

    2 big advantages of this.
    1. loading up on calls slightly out of money before earnings and making a ton once earnings have come. doing this for past 2 earnings in ma and raking in the moolah
    2. the calls stay cheap since ma and v are bashed.

    yeah, i am not even talking about how ma and v will perform. they will blast the earnings. rimm, ma, fslr, pcln have been doing this again and again and again and i am tired of reading arguments on the contrary. now v joins the elite list.

    but meanwhile we need more people bashing ma, fslr, pcln and v so that we can bulk up on stock and bulk up on calls.

    here is a line for ma and v bashing - both companies stock will plunge 50% in next month due to huge worldwide recession that creates famine in asia due to rice issue and north america due to beef issue. ma will plunge to 125 bucks and v to 35 bucks!!!! LOL!!!!
    Reply | Link to Comment
  •  
    Apr 14 11:09 PM
    BuyV

    Dont leave and come back when the stock hits $75. I enjoy your informative blogs and you seem to dissect the articles and seperate the fact from fiction.

    GreenCapitalist,
    I dont think bashing MA or V will help the cause.

    Reply | Link to Comment
  •  
    Apr 14 11:40 PM
    adesai,
    i think bashing will help. big time.

    i am a big trader of ma stock everyday. when ma reported earnings in dec 2007 there was so much -vity. everybody thought ma is going to miss and guide lower. ma just mowed them like a lawn mower.

    you have to listen to their conf calls. seekingalpha might have archived it. the management is awesome. it is a lean and mean machine. gross margin is one of the highest in the industry in finance spectrum. they are expanding crazy in asia pac, south asia, china, mid west and europe. the growth is superb in these regions ranges from 25 to 50% and i expect ma will top estimates.

    ma should go 260 after blasting on april 29. it is a company that knows how to run a mean machine + take care of its stock.

    v, needless to say matches ma step by step. a gigantic brand and an omnipresent one with huge growth in china and in debit card space in america, it is an engine that is just getting started with ipo.

    but we have to bash ma and v so that i can pick up calls cheap and also common stock cheaper.

    so, ma and v will be terribly affected by the world recession that is going on right now. people all over the world are struggling to make day to day life needs taken care and riots is going to come all over the world due to credit crunch. ma might merge with bank of america due to its collapse of stock price to low teens from might 220's and visa will be looking for extra capital to run operations. LOL!!!!
    Reply | Link to Comment