Credit card profits for the top U.S.-based global payments networks skyrocketed year-on-year (YOY) in the fourth quarter (4Q/18). The network peer group net income (after tax) soared 240.0% YOY for 4Q/18, equally driven by “kitchen sink” quarters for Mastercard and American Express.
The Major 4 (Visa, Mastercard, American Express and Discover) reported a combined 4Q/18 (after tax) profit of $6573 million, compared to $7118 million for 3Q/18 and $1930 for 4Q/17, according to data collected by CardData.
The aberration in YOY changes was primarily due to the impact of Tax Cuts and Jobs Act, and, to a lesser extent by increases in loan-loss reserves, according to analysis by RAM Research.
Visa’s global after-tax net income increased by 18.0% YOY to $2977 million for 4Q/18, compared to $2845 million for the prior quarter, and $2522 million one-year ago.
Mastercard’s global after-tax net income soared by 224.5% YOY to $899 million for the fourth quarter, compared to $1899 million for 3Q/18, and $227 million for 4Q/17.
American Express global after-tax net income went to the stratosphere gaining 266.7% YOY to $2010 million for 4Q/18, from $1654 million for the prior quarter, and a ($1206 million) loss for the year ago quarter.
Discover global after-tax net income jumped 77.5% YOY to $687 million for the fourth quarter, compared to $720 million in 3Q/18, and $387 million for 4Q/17.
CardFlash earlier reported credit card profits (after tax) among the nation’s Top 4 bank credit card issuers soared 31.4% in the fourth quarter (4Q/18), compared to one year ago (YOY). This compares to a YOY growth rate of 28.8% for the prior quarter.
Visa Q4 Notes
Net revenues in the fourth calendar quarter were $5.5 billion, an increase of 13%, driven by continued growth in payments volume, cross-border volume and processed transactions. Excluding two special items in prior year’s results related to U.S. tax reform, adjusted net income and adjusted earnings per share increased 17% and 21%, respectively, over prior year’s results
Visa updated its definition of reported Payments Volume to account for all new payment flows carrying the Visa, Visa Electron, V PAY and Interlink brands. The updated definition now includes all disbursement, or “push payment”, volume. The previous definition only included funding, or “pull payment”, volume related to Visa Direct.
Mastercard Q4 Notes
Net revenue increased 15% as reported, or 17% on a currency-neutral basis. The new revenue recognition rules contributed 5 percentage points to this growth. Excluding this item, underlying revenue growth was 12%, driven by the impact of the following factors: an increase in switched transactions of 17%; a 14% increase in gross dollar volume, on a local currency basis, to $1.5 trillion; and an increase in cross-border volumes of 17% on a local currency basis.
These increases were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. Other 4Q/18 income (expense) was favorable versus the year ago period, primarily due to higher investment income, partially offset by higher interest expense related to the company’s debt issuance in February 2018 and higher equity losses in the current year. The effective tax rate for 4Q/18 was 26.0%, versus 84.7% for the comparable period in 2017, primarily due to the impact of U.S. tax reform recorded in 2017 and a lower 2018 statutory tax rate in the U.S.
American Express Q4 Notes
The fourth quarter included $496 million of certain discrete tax benefits. The 4Q/17 period included a charge of $2.6 billion, related to the Tax Cuts and Jobs Act. Fourth-quarter consolidated total revenues net of interest expense were a record $10.5 billion, up 8% from a year ago. Excluding the impact of foreign exchange rates, adjusted revenues net of interest expense grew 10% The rise reflected higher cardholder spending, loan volumes and card fees.
Consolidated provisions for losses were $954 million, up 14% from 4Q/17. The increase reflected growth in the loan portfolio and higher lending write-off rates. Consolidated expenses were $7.7 billion, up 9% from a year ago. The rise primarily reflected higher rewards and other customer engagement costs, which were partially offset by lower operating expenses.
The consolidated effective tax rate was (9.8%), down substantially from a year ago. The $496 million tax benefit mentioned above reflected changes in the tax method of accounting for certain expenses; the resolution of certain prior years’ tax audits; and an adjustment to the company’s 2017 provisional tax charge related to the Tax Act. The effective tax rate for the quarter excluding these items was 17.3%.
Discover Q4 Notes
Net income in the fourth of 2017 included non-recurring charges of $189 million resulting from actions taken by the company in connection with the Tax Cuts and Jobs Act.
Provision for loan losses of $800 million increased $122 million from the prior year due to higher net charge-offs and a higher reserve build. The reserve build for the fourth quarter of 2018 was $120 million, compared to a reserve build of $94 million in the fourth quarter of 2017. Expenses increased $64 million from the prior year due to incremental investments to enhance global merchant acceptance, marketing expenses and information processing. Marketing expenses increased as a result of higher investment in brand and digital marketing. Information processing increased due to investments in infrastructure and analytic capabilities.
Payment Services pretax income was $23 million in the quarter, down $6 million from the prior year, driven by higher expense investment to support business growth and infrastructure, partially offset by higher revenue driven by transaction volume growth.
Major 4 Card Network Income
4Q/15: $4230 million
4Q/16: $4391 million
4Q/17: $1930 million
4Q/18: $6573 million
Visa Global Net Income
4Q/15: $1941 million
4Q/16: $2070 million
4Q/17: $2522 million
4Q/18: $2977 million
Mastercard Global Net Income
4Q/15: $ 890 million
4Q/16: $ 933 million
4Q/17: $ 227 million
4Q/18: $ 899 million
American Express Global Net Income
4Q/15: $ 899 million
4Q/16: $ 825 million
4Q/17: ($1206) million
4Q/18: $2010 million
Discover Global Net Income
4Q/15: $500 million
4Q/16: $563 million
4Q/17: $387 million
4Q/18: $687 million
Source: Visa; Mastercard; American Express; Discover; RAM Research; CardData