There is growing concern around a proposed 10% cap on credit card interest rates, something the JPMorgan CEO has called an economic disaster. The question is how exposed would be if such caps were implemented.
Mastercard would have no exposure because it only handles payment processing and does not earn interest. Interest rate caps would affect banks and card issuers, not processors. President Trump is pushing this proposal to help the bottom 50% of consumers who may have credit card issues, and he has asked Elizabeth Warren for help on it. The request is for a one-year cap through Congress, and we will see what ultimately happens.
Exposure and Relative Positioning
Visa faces the same situation as Mastercard in that it does not carry interest rate risk, since it also only provides payment processing. The risk lies with banks and card issuers, not with the networks.
Visa looks slightly better than Mastercard on current forecasts. Visa is larger in the United States, while Mastercard is larger internationally. Visa’s sales are expected to rise 12.4%, and earnings are expected to grow a little over 14%. There are positive analyst revisions and a good earnings surprise history.
These stocks should be fine. Consumers continue to use credit cards, and the networks are insulated from interest rate caps. One interesting dynamic is how professional money managers might react if a cap is implemented. They may reduce exposure to issuers like Capital One and rotate into Mastercard or Visa, since those companies would not face interest rate risk. Because of that, it would not be surprising if both Mastercard and Visa actually benefit from a 10% credit card interest rate cap if it goes into effect.
: Store Closures and Earnings Pressure
Starbucks has announced store closures, and frankly, they need to be closing stores after missing three quarters in a row. Sales are expected to grow about 2.6%, while earnings are expected to decline 15%.
Until Starbucks delivers an earnings surprise, the stock is unlikely to perform well. There have been analyst cuts in recent months, and it is up to the company to finally turn expectations around. The store closures are unfortunate, and a significant number of them are now underway.