MasterCard Inc., which reported better-than-expected third-quarter results, said it is cooperating with a government antitrust investigation into merchant steering practices.
The Purchase, N.Y., payments network said in a regulatory filing Tuesday that it is cooperating with the Department of Justice's request for "information regarding certain rules relating to merchant acceptance, particularly with respect to merchants' ability to steer customers to payment forms preferred by merchants."
MasterCard said in the filing that it "and other payment industry participants" had received a civil investigative demand for information, which the Justice Department's antitrust division issued Oct. 10. American Express Co. said last week that it had received a similar demand sent on Oct. 10 for information about its merchant surcharging and "anti-steering" policies.
A spokeswoman for Discover Financial Services said Tuesday that Discover is also "working to respond to the DOJ's request." Neither Visa Inc. nor the Justice Department would discuss the matter.
MasterCard, whose third-quarter results beat analysts' expectations, nevertheless announced cost-cutting measures because of the global economic slowdown. It has instituted a hiring cap "essentially eliminating all open positions" and reduced spending on contractors, advertising, and marketing, among other things.
American Express said last week that it was laying off 7,000 employees, or 10% of its global work force, and reducing investment spending by about $1 billion.
Martina Hund-Mejean, MasterCard's chief financial officer, said in an interview Monday night: "I would never say that we wouldn't make job cuts, but I think they would be at this point in time much more surgical... We are cutting investments in the U.S. and investments in Europe," where "our growth has come down considerably," but "still investing in the emerging markets," where growth rates are "still pretty healthy."
MasterCard, which has about 5,000 employees worldwide, announced its third-quarter results after the market closed Monday.
MasterCard plans "to hold operating expenses essentially flat over 2008 levels," Robert W. Selander, its chief executive officer, said during a conference call Monday night.
Adam B. Frisch, an analyst with UBS AG, wrote in a research note to investors Tuesday that the plan to cut costs "was a positive and welcome disclosure." MasterCard's expenses had been "an area of concern" after it reported its second-quarter results, he wrote.
Ms. Hund-Mejean echoed other card industry executives when she said MasterCard is still looking for investment opportunities, especially "in the technology arena."
In "this kind of economic environment, that's possibly the time when you want to make some moves in the mergers and acquisitions arena — the values might be beaten down," she said.
MasterCard has settled antitrust litigation brought by Amex and Discover, and Mr. Selander said during the call that a merchant lawsuit against MasterCard and Visa that is "in the midst of completing the discovery process," will "take a couple more years to play out."
Ms. Hund-Mejean said during the interview that, given that time frame, she does not expect the litigation to affect MasterCard's allocation of capital or investment strategies.
She said she sees the recent consolidation in the banking industry as an opportunity, rather than as a threat to MasterCard's bargaining power with issuers.
But such opportunities will "take some time to play out," she said. "A lot of these banks have a lot of other things to worry about."
MasterCard, which has lost some debit business to Visa this year, hopes to get some banks to issue debit cards on both networks, but Ms. Hund-Mejean said winning entire debit portfolio conversions was less likely.
"Any financial institution might be hard-pressed to do an outright conversion," she said. But "we are finding that a lot of banks do like at least the duality."
Mr. Selander said during the call that MasterCard no longer expects to reach the "12% to 15% longer-term performance objectives we've established, and at this point in time we're looking at needing high single digits in terms of top-line growth in order to make the 3% to 5% on our operating margin and the 20% to 30% on net income growth."
But he said the company still expects to meet its 2009 targets for margin growth and earnings-per-share growth.
The transactions processed across MasterCard's network increased 13%, to $5.4 billion, but that growth rate fell 30 basis points from a year earlier. MasterCard said there was "pronounced weakness" in the United States in October, when its processed payments volumes "were slightly negative versus last year," Mr. Selander said.
Gross dollar volume growth was 12.3% for the quarter on a local-currency basis, down 50 basis points from a year earlier. That decline in growth appeared to continue during the month of September, when "worldwide processed volume growth, our intraquarter proxy for gross dollar volume, was high single digits on a local-currency basis," Mr. Selander said.
Cross-border growth, which was 18% during the quarter, fell to "the high single digits" in October.
Tien-tsin Huang, an analyst at JPMorgan Securities Inc., said in a note to investors Tuesday the slower cross-border growth was "as expected" and "consistent with Visa," but said MasterCard's overall results for the quarter "were well ahead of expectations."
Sanjay Sakhrani, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., wrote that MasterCard's results were "relatively solid" and "above our estimates," but warned that further problems could be ahead for MasterCard, especially considering it has a relatively small debit processing business.
"By virtue of the company's disproportionate contribution of credit card volume, more pain can be felt, particularly internationally," he wrote.