MasterCard Posts Loss Fueled by Settlement

MasterCard ( MA) shares surged more than 7% in after-hours trading, despite reporting a net loss for the third quarter related to a big charge for its antitrust litigation settlement with Discover Financial Services ( DFS).

For the three months ending Sept. 30, the Purchase, N.Y.-based card network posted a loss of $193.5 million, or $1.49 a share, vs. a profit of $314 million, or $2.32 a share in the year-ago quarter. MasterCard had announced last week that it would take a charge of $827.5 million ($515.5 million after taxes) to cover the settlement.

But excluding the charge, the firm posted net income of $322 million, or $2.47 a share. Analysts, who typically leave out special charges, expected the company would make $2.25 a share on $1.25 billion of revenue, according to Thomson Reuters.

MasterCard said net revenue rose 23.6% to $1.34 billion in the quarter. The combination of double-digit increases in gross dollar volume by 12.3% to $662 billion worldwide; the number of transactions processed by 13% to 5.4 billion and an 18% increase in cross-border volume contributed to revenue in the quarter, MasterCard said. MasterCard said that purchase volume in the quarter rose 13% to $97 billion.

"We are very pleased with our third quarter performance and our ability to deliver strong financial results given the declining global economy," CEO Robert Selander said in a statement. "At a time of unprecedented economic challenges, consumers, businesses, and governments around the world have continued to migrate toward various forms of electronic payments."

Still the company has "significantly accelerated" its focus on cost structure, "while making sure we remain prudent in allocating resources to those investments that will enable us to drive growth worldwide, today and in the future," Selander said.

MasterCard is working with its financial institution customers to "address risk management, reduce write-offs, improve segmentation efforts, and deliver more relevant messages to cardholders," he added.

MasterCard's U.S. credit card gross dollar and purchase volume totals fell in the quarter, while its debit card business showed double digit increases. MasterCard has been making a big push to increase its debit card business in the states, which will offset the slowness in credit card business as the economy softens.

Last week MasterCard rival Visa ( V) also reported a loss for the quarter based on litigation charges related to Discover. The company, along with American Express ( AXP) alleged that Visa and MasterCard conspired to keep them out of the bank-issued card business.

Analysts say that despite the rocky few quarters both Visa and MasterCard may experience as a result of lower consumer spending, the long-term business models for both are solid as consumers and businesses increasingly use electronic payment methods as opposed to cash.

Separately American Express said last week that it plans to cut 7,000 jobs or roughly 10% of its workforce as it lays out details on a cost restructuring program in the wake of the financial turmoil that is hitting even wealthy consumers.

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