Credit Card Debt Management

The first two quarters of 2008 have been a real mixed bag for American Express. On the bright side, the company saw two rulings in its favor in legal claims that MasterCard and Visa were intentionally blocking banks from partnering with competitor AmEx. The $4 billion in settlement payments from those antitrust suits could not have come at a better time.

According to Bloomberg.com, American Express stock has dropped nearly 20 percent, historic losses within a six-month period for the company. The losses are being blamed largely on the current economic slowdown affecting consumer spending and the business climate.

What’s interesting is that even AmEx’s top clients (and the ones who the company most aggressively recruits), the big spenders with high credit scores, are having issues. According to CEO Kenneth Chenault:

“We are seeing very affluent people who have had historically very, very strong spending history with us cutting back.”

Late and uncollectible loans were higher than expected in the second quarter, according to Chenault. The company’s long-term forecasts are being put on hold until the economy improves, and tracking has halted for the company’s $4 to $6 earnings per share forecast for 2008.

The news is further proof that AmEx, Discover, and Capital One are shaky investments for shaky times. Visa and MasterCard, however, have no exposure to bad loans because they are not lenders. Though Visa and MasterCard may be more stable, many investors (very likely including Warren Buffet, who owns 13 percent of AmEx stock) might be inclined to advise the purchase of AmEx, Discover and CapOne stock while the getting’s good. America’s obsession with credit cards isn’t going away any time soon, so the companies are sure to rebound.

Wall Street analysts are dubbing MasterCard (MA) and Visa (V) shares “recession-proof stocks.” It’s no secret that these two companies have shown a solid performance. Despite the roller coaster stock market, especially in the financial sector, these two stocks have remained relatively stable.

Visa has already more than doubled its IPO price of $44 a share in mid-March of this year. Its IPO also enjoyed a record-setting take of $17.86 billion, first place in the history of U.S. domestic IPOs and third place among IPOs worldwide.

MasterCard, more veteran to the stock market scene than Visa, has been floating near or above the $300/share mark for a while. The company has $2.66 billion in cash and $229 million in debt, according to StreetSpeculator.com. The site further points out that Visa’s cash is more than twice that of MasterCard and the debt is less than half.

But what makes these two companies such buoyant choices in the violent sea of stock turmoil? No liabilities. Aside from legal disputes, something they’ve both just experienced, these two companies cannot be touched by the bad debt wreaking havoc on so many banks and other credit card companies like Discover, Capital One and American Express. Visa and MasterCard are safe because they do not make loans, they merely facilitate loans and purchase transactions. Their profit does not come from late fees and interest charges imposed on card-carrying consumers. They instead derive profit from fees imposed on banks who use their logo on cards and merchants who allow customers to pay for goods or services with their card.

It makes for a very “cash cow” stock choice, as StreetSpeculator.com puts it. July 31 is quarterly earnings report day for both companies — if profits exceed forecasts, the share values will likely soar and it could be a good day for stockholders indeed.

There is a new e-mail scam circulating now, according to Web Host Industry News, promising “Casino Rewards” for those who sign up for a credit card. The e-mails claim to be sent by American Express, Visa or MasterCard, in conjunction with 12 major U.S. international banks. It promises a credit card with a $100,000 spending limit, or 10 days in a premiere hotel with $30,000 spending cash.

The e-mail offers a click-through link to an informational web site with a drop-down list of banks. Scam victims choose their bank and are then sent to a “mirror” web site that looks identical to their online banking site, where they log in with their username and password. All is seemingly normal, except the site is a phony and is capturing online banking login information for fraudulent use.

E-mail scams, also known as “phishing,” are a prime way for scam artists to wreak their havoc in the 21st Century. Technology allows everything to appear normal, and the same applies to telephone scams. Con artists can actually “mirror” a legitimate telephone number, with a local area code and everything, so nothing appears suspicious on Caller ID boxes. It sets the victim at ease, just like “mirroring” a web site with which they are familiar. According to the Anti-Phishing Working Group, the financial services industry is the most targeted of all when it comes to e-mail scams. That industry served as the target of e-mail scams as much as 93.8% of the time in November 2007, the group reported.

The bottom line to remember is if it sounds too good to be true, it probably is. If there’s any doubt, call the bank or credit card company itself and ask for more information. Also remember that banks and credit card companies will never, ever ask for your login information or account numbers, period.