Payments on Hold As Katrina Floods a City

  Hurricane Katrina almost destroyed New Orleans, and nearly 90,000 square miles in the Gulf Coast were covered under a federal declaration of disaster. Lives lost rose into the thousands. Damages were estimated to be at least $125 billion, with 160,000 homes destroyed in Louisiana alone.
  This section provides an overview of the immediate implications to the payments industry that arose from Katrina's devastation.
  After the storm, banks, independent sales organizations and merchant acquirers began counting their losses and their blessings. Meanwhile, firms that could offered their assistance.
  The primary infrastructure damage in the region was to phone lines provided by such firms as Bell South, MCI and AT&T that make up the backbone of the card-processing network. It will take months to rebuild the damage that affected 250 Visa members, says Una Summerville, Visa executive vice president, customer service.
  Also negatively affected was Capital One Financial Corp., which delayed its planned purchase of Hibernia Corp. and lowered its bid to buy the bank. J.P. Morgan Chase & Co. took a $250 million charge in the third quarter because of damage Katrina caused to its retail operations. Citigroup took an after-tax charge of $222 million in the third quarter, with $110 million of that falling to its North American Cards division.
  First Data Corp. estimated a half-cent drop in earnings per share in the third quarter because of a decline in Western Union transactions and the loss of merchant point-of-sale business.
  The good news? There was no impact on the central infrastructure of payment networks Most of Visa's issuers were running within three days after Katrina hit, says Summerville. Katrina also did not affect the infrastructure of Pulse, the debit network of Discover Financial Services, says Warren Coles, executive vice president.
  And the storm had little effect on merchant acquirer and processor Global Payments Inc.'s network or transaction volume, says Mike Reidenbach, chief information officer. "It could be a lot of our (customers) are still carrying on wherever they may be displaced to," he says. "It could be there's been an increase by consumers that have to replace things."
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