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Visa Details Vastly Increased Risk Factors and Threats to Its Business

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It turns out the old status quo was "priceless" and the new world order is not necessarily where the company would like to be. An exclusive look at the 10-K's fine print.

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MINYANVILLE ORIGINAL Visa (NYSE:V) filed its latest 10-K with the Securities Exchange Commission late Friday, November 30. Comparing the language in the "Risk Factors" section (1A) year-over-year (compared to the 10-K filed in October 2011) shows that the company has expanded the verbiage in the section by 60%. Over 6,000 new words of warning have been added to the section (by comparison, 184 words were deleted and about 200-some changed or changed within changes).

So, what's in Visa's wallet of woe? The expansive list includes regulations, litigation, market volatility, technology, which spawns non-traditional competition, global challenges, and upcoming executive changes, to name a few.

If last year's 10-K provided a sketch of the problems the company might face as the result of Dodd-Frank-stemming regulations and interchange reimbursements, this year's can be considered a painting.

In new words this year the company says:

If we cannot set default interchange rates at optimal levels, issuers and acquirers may find our payments system unattractive. This could materially lower overall transaction volume or slow growth of transactions in the future.

Historically, of course, Visa and the other credit card issuers set default interchange reimbursement fees in the United States and many other geographies. Losing that ability, or having it restricted, is now an issue that will "materially increase the attractiveness of closed-loop payment systems"; in other words, systems that link the merchant and the consumer and cut out the middleman.

This "will likely create negative pressure on our pricing, reduce the volume of US debit payments we process," and "diminish" revenues.
Last year the 10-K acknowledged the new Consumer Financial Protection Bureau created by the Reform Act/Credit Card Act which are in turn a result of Dodd-Frank.

Worse, it sees the issues which have been previously US-centric going global. New this year, the company identifies jurisdictions including "Australia, Canada, Brazil, and South Africa" as witnessing new consumer-oriented rules that could materially impact its business.

Now, on a global basis, its says, "we may have to re-examine and possibly renegotiate certain of our contracts to ensure that their terms comply with new regulations, these and other clients will have the opportunity to renegotiate terms relating to fees, incentives and routing."
Since 2005, the 10-K states, approximately 55 class actions and individual complaints plaintiffs estimate that damages will range in the tens of billions of dollars. Because these lawsuits were brought under the US federal antitrust laws, any actual damages will be trebled.

Indeed, skimming down the 10-K to a line item for deposits into litigation escrow accounts shows that the amount the company has put aside has more than tripled since 2010. This year it has $1.715 billion in escrow compared to $1.2 billion in 2011 and $500 million in 2010.
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