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Mastercard Results Signal Consumer Demand Destruction


Liabilities balloon, shareholder equity declines.


To me, the most interesting data from last night's MasterCard (MA) results was in the US charge-card purchase-volume growth figures (people using credit cards, not debit cards, to buy things (not cash advances)).

During the third quarter, credit purchases in the US increased just 1.5% from a year ago, versus a 2.8% growth rate in the second quarter and a 7.1% growth rate a year ago.

When you factor back in the declines in cash-advance activity which MasterCard reported, the results are even worse: A 1.3% drop in annual growth versus 0.7% in the second quarter and 5.4% a year ago.

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While the regulators like to talk about the lack of credit availability, the data above suggest serious consumer demand destruction. Furthermore, the change in consumer behavior will have a significant impact on issuers' results as credit related fees drive the bulk of profitability.

One last comment on MasterCard specifically: Due to its litigation expenses -- and the associated losses -- common shareholder equity has declined significantly since the beginning of the year, while liabilities have ballooned. Furthermore, deferred tax assets now represent 50% of equity.

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