Despite a revenue boost it attributed largely to its joint venture with Bank of America Corp., First Data Corp. reported a $288.9 million loss for the third quarter, 76% wider than the year-earlier loss.
Michael Capellas, the transaction processor's chairman and chief executive, said the merchant processing joint venture with B of A, Banc of America Merchant Services LLC, was the "primary driver" of First Data's third-quarter revenue growth.
The company's total revenue rose 13%, to $2.4 billion. Revenue growth for Banc of America Merchant Services "has been meeting or exceeding expectations," Capellas said in a conference call with analysts.
"In the quarter, we experienced some dilution, but over the medium to long term it will become accretive and deliver significant additional strategic benefits," Capellas said.
The joint venture, announced in late June, is First Data's largest merchant acquiring alliance. It has similar partnerships with Wells Fargo & Co. and PNC Financial Services Group Inc.
First Data, a unit of Kohlberg Kravis Roberts & Co., has experienced an increase in new business and its merchant attrition levels have been flat since it started the alliance with Bank of America, Capellas said.
But the poor economy, coupled with unfavorable foreign exchange rates and merchant credit losses have all stung First Data.
"The effect of the weak economy and constrained credit continued to weigh on our results," Capellas said. An after-tax interest expense of $283 million contributed to the company's third-quarter net loss.
The comparison figures also looked weak because last year's third quarter was First Data's strongest quarter in two years, Pat Shannon, First Data's executive vice president and chief financial officer, said during the conference call.
Revenue for the retail and alliance services division, which includes credit, debit, check, stored-value and loyalty card processing services, fell 4%, to $796.7 million.
The weak economy "more than offset" transaction growth of 15% and roughly 134,000 new U.S. merchant locations in the third quarter, Shannon said. "We continue to see declines in average ticket, shifts from credit to debit and lower interest income on a year-over-year basis," he said.
Average ticket declined 12% and created an $18 million impact on earnings, while an increase in debit transactions from 26% of total transactions to 28% created a $4 million impact, Shannon said.
Revenue for the financial services division fell 11%, to $339.3 million. The segment renewed 131 contracts in the quarter, but previous client losses and price compression offset new-business growth, according to First Data. The weak economy also caused a reduction in active retail and credit card accounts and lower statement volumes.
Revenue in First Data's International division fell 10%, to $414.6 million.