A federal judge's call for a revised settlement from Visa Inc. (NYSE:V) and Mastercard Incorporated (NYSE:MA) after tossing out their $30 billion antitrust settlement on June 25 should not have much of an impact on their similar business models, according to an analyst.
U.S. District Judge Margo Brodie in Brooklyn wrote on Friday that the banks could handle a "substantially" larger settlement, arguing that the deal would have "disproportionately and inequitably" benefited small, local merchants over larger retailers such as Walmart Inc. (NYSE:WMT), Bloomberg reported.
Despite Brodie's opinion, JPMorgan remained Overweight on both Visa and Mastercard on the belief that "the diversity, complexity and scale of their business models give each substantial ability to preserve overall pricing and maintain earnings growth."
"In isolation (and acknowledging a wide spectrum of outcomes) we don't find the court's commentary overly concerning and based on the memo's text we think that V/MA's economic model is unlikely to be materially impacted by a revised agreement," JPMorgan analyst Tien-tsin Huang wrote in a note on Monday.
"In our view, a worse outcome would be if an agreement cannot be made and the litigation proceeds to trial, which widens the spectrum of potential outcomes."
Also Read: Visa, Mastercard's $30B Deal Hits A Snag: Judge Signals Rejection
The initial agreement, which is aimed at resolving two decades of legal battles over credit-card swipe fees, would have let big retailers charge higher fees on Visa or Mastercard credit cards while allowing smaller merchants to use pricing tactics that steer consumers to lower-cost cards, according to Brodie's opinion.
The "cost" of the settlement is the estimated $30 billion that the merchants would end up saving over five years, the judge noted.
But Brodie further wrote in her opinion that the estimated $6 billion in annual savings to merchants is "paltry compared to the $100 billion that merchants paid" in interchange fees on Visa and Mastercard transactions last year, according to Bloomberg. The two firms could "withstand a substantially greater judgment," she said.
The judge's opinion for a revised settlement is "a net-negative for the stocks," but it does not seem as bad as other recent bear views, Huang said.
Price Action: Visa dipped 0.06% to $262.32 by Monday's mid-afternoon trading, while Mastercard declined 0.65% to $438.30.
Two exchange-traded funds that give investors exposure to Visa and Mastercard stocks saw modest gains, however, by mid-afternoon. Shares U.S. Financial Services ETF (NYSE:IYG) rose by 0.33%, while SPDR Select Sector Fund – Financial (NYSE:XLF) gained 0.21%.
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