Mastercard Takes $873 Million One-Time Tax Hit; Lands Cabela’s Cobranded Card

Mastercard Inc. took an $873 million, one-time charge in 2017’s fourth quarter related to the new federal tax law, and the company reported Thursday that the cobranded Cabela’s Visa card will switch to the Mastercard brand.

The Tax Cuts and Jobs Act that President Donald Trump signed into law in December provides a big reduction in the corporate tax rate and has temporary reductions for individuals, but how it affects each company in the near term varies widely depending on where and how a firm operates. While Mastercard is taking a big one-time hit, processor Total System Services Inc. (TSYS) recently posted a $136 million tax benefit as a result of the law.

Although many companies besides Mastercard are taking one-time tax-related charges, most executives are praising the law. Among them are Mastercard president and chief executive Ajay Banga. “We see this as a very positive development for the country, particularly in the near term,” Banga told analysts on a Thursday morning conference call. Because of the new law, among other things Mastercard will invest $500 million in philanthropic ventures and increase its contribution to its employee defined-benefit retirement program to 10%. That provision will affect most of Mastercard’s workers, he said. And over time, “the majority of the tax savings will be used to invest in the growth of our business, and also to return excess capital to our shareholders,” Banga said.

On the operations side, Mastercard reported that it switched 17.7 billion transactions in the fourth quarter, up 17% from 15.2 billion a year earlier. In the U.S., the No. 2 payment network posted combined credit and debit card purchase volume of $366 billion, a 10% increase from $333 billion a year earlier. Full-year purchase volume came in at $1.39 billion, up 6% from 2016’s $1.31 billion.

U.S. credit card purchase volume increased 10% in the fourth quarter to $198 billion from the prior year quarter’s $180 billion, and ended the year with $743 billion in volume, up 7% from 2016’s $693 billion.

Debit and prepaid card purchase volume grew 10% in the fourth quarter to hit $168 billion from $153 billion a year earlier. For the year, U.S. debit and prepaid card purchases totaled $642 billion, a 4% increase from $618 billion in 2016.

Separately, Mastercard reported that the Cabela’s Club cobranded credit card for customers of the outdoor retailer will become a Mastercard. The current Visa-branded Cabela’s card is issued by Capital One Financial Corp. Capital One will remain the issuer, and under terms of a new arrangement the McLean, Va.-based banking and card company also will take over issuance of the Bass Pro Shops cobranded Mastercard, which currently is issued by Charlotte, N.C.-based Bank of America Corp., according to a Mastercard spokesperson.

Springfield, Mo.-based Bass Pro Shops bought archival Cabela’s last September. Mastercard did not reveal the size of the Cabela’s card program, and a Bass Pro Shops spokesperson did not respond to a Digital Transactions News email for comment. But Banga said the combined cobranded program “is one of the largest” in the U.S. market.

Mastercard reported net fourth-quarter revenues of $3.31 billion, a 20% increase from $2.76 billion a year earlier. Due to the one-time charge, net income fell 76% to $227 million from $933 million in 2016’s fourth quarter. Full-year revenues grew 16% to $12.5 billion from $10.8 billion in 2016, with net income falling 4% to $3.92 billion from 2016’s $4.06 billion.