ANALYSIS - More credit card rules could hurt Visa, MasterCard

By Juan Lagorio

NEW YORK (Reuters) - Visa Inc and MasterCard Inc, the world's largest payment networks, could face lower revenue and pressure on their stock prices amid a push for increased U.S. regulation of credit cards.

Specifically, Congress is mulling regulations on interchange rates -- fees retailers and merchants have to pay to banks that issue credit cards.

Most immediately, that would affect the banks that collect those fees. But some investors and analysts are concerned the banks -- already battered by credit losses and toxic assets -- could try to share the haircut with Visa and MasterCard.

"Longer term, I think it is a real risk for the model, but this could impact their stocks right now," said Donald Fandetti, an analyst at Citigroup.

Visa and MasterCard said the companies would not be impacted by the legislation because they do not charge interchange fees.

But concern about the legislation has contributed to a 10 percent drop in Visa's shares in the last month and a 5 percent decline for MasterCard, and the shares could fall further, analysts and investors say.

"It's an overhang on these stocks, at least until we have some clarity," said Moshe Katri, an analyst at Cowen & Co, who said the legislation could impact the profitability of 20 percent of MasterCard's revenues and 10 percent of Visa's revenues.

Before the financial crisis, Visa's shares traded at 25 times future earnings and MasterCard stock was at 20 times. Now Visa's shares are trading closer to 20 times 2010 earnings and MasterCard stock is around 15 times.