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Who Owns the Credit Card Companies?

credit card logos; thetruthabout via Flickr

Question: Who owns the credit card companies? Once upon a time, Bank of America owned Visa, but I’m not sure if it’s been spun off. So, if the stress tests have shown that the banks are not as healthy as they should be, does that mean the credit cards might go under as well?

Paul Solman: Visa is a publicly held company as of last year, when its stock was sold in the largest Initial Public Offering in history, after being owned by thousands of institutions, mainly banks. MasterCard Worldwide went public in an IPO in 2006. The Discover Card is was owned by Morgan Stanley; it is now an independent financial company. (Please see update below.) As to American Express, your guess is as good as mine. (Just kidding.) As to the stress tests, even if they’d shown the banks to be more vulnerable than they have been, the companies would be unaffected.

I shared your question with bank analyst Chris Whalen, who writes: “The card issuers own the brand and the payment network. The card accounts are mostly owned by banks, who extend the credit and own the relationship.”

So, if cardholders default in large numbers, the banks would be hurt before the credit card companies. However, since credit card accounts were often pooled and sold off by banks to investors as securities, in the same way mortgage-backed securities were — as CREDIT CARD-backed securities — it’s not clear how badly the banks would be hurt. Depends on the extent to which they securitized. In other words, banks that got rid of their credit card accounts by selling them are obviously a lot fewer than those that held onto them.

UPDATE: The ever-zealous readers of this page point out that Morgan Stanley spun off the Discover card in 2007. I was remembering a TV ad spoof I once produced of the firm’s merger mania that ended: “Morgan Stanley Dean Witter Discover Microsoft: We measure success — one sucker at a time.” I guess it stuck in my head and my Internet check turned up an anachronistic corroboration.

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