updated 10/31/2007 2:57:20 PM ET 2007-10-31T18:57:20

MasterCard Inc.’s third-quarter profit blew past Wall Street’s expectations, jumping 63 percent in a powerful reminder that many people around the world are still making money and finding ways to spend it.

The credit-card processor’s results — boosted by sharp increases in spending overseas and moderate growth in the United States — drove shares up more than 17 percent Wednesday to an all-time high.

In these rocky times for the financial sector, MasterCard plays a desirable role: Processing the world’s credit card payments but taking on none of the debt. The risk is instead held by the 25,000 banks in more than 200 countries that issue the cards.

It’s the same business MasterCard’s larger, not-yet-publicly-traded competitor Visa is in, so they don’t have to set aside loan-loss provisions as American Express Co. and Discover Financial Services LLC do.

“The world is using more cards, and there’s no signs of it slowing down,” said Celent LLC analyst Red Gillen. The U.S. market is fairly saturated, but Latin America, Asia and Europe are still seeing people replace their checkbooks with plastic in droves.

Moreover, the U.S. card industry has not even seen much credit deterioration, in contrast to mortgage lenders, who have logged huge losses as home loan defaults rise.

Credit card receivables are one asset investors in the tight credit markets actually want backing their securities. Through Oct. 26, credit card-backed securities volume totaled $14.33 billion for the month, more than any other type of asset-backed security. Year-to-date volume has already eclipsed that in 2006.

“Obviously, the U.S. consumer is under some level of stress. But it is not a severe stress,” said chief financial officer Chris McWilton in an interview with The Associated Press. He added that weakness in low-end and middle-range retail spending has been offset by strong spending among the affluent.

International travel, lifted in part by the weak dollar, was another boon. Cross border transactions, which generate higher fees, rose more than 20 percent in the third quarter compared to last year.

Less than half of total gross dollar volume, which gained 12.8 percent to $577 billion, was from U.S. credit, charge and debit programs. Though U.S. programs did grow, other regions posted steeper percentage gains.

Total transactions processed rose 13.3 percent to 4.8 billion.

The Purchase, N.Y.-based company said profit in the July-to-September period was $314 million, or $2.31 a share, up from $193 million, or $1.42 a share, a year ago. Excluding after-tax gains from the partial sale of its investment in Redecard SA, a company that signs up merchants in Brazil, per-share profit was $1.80.

Revenue rose 20 percent to a record $1.08 billion from $902 million last year.

Analysts polled by Thomson Financial predicted earnings of $1.42 per share on revenue of $1.03 billion.

MasterCard shares jumped on the news. In May 2006, it priced its initial public offering at $39 a share.

KeyBanc Capital Markets analyst Anurag Rana maintained a “buy” rating, noting that MasterCard’s strong results were “encouraging given concerns pertaining to consumer spending.”

Additionally, MasterCard did not have to lower fees to stay competitive. Revenue per dollar increased slightly year over year to 18.8 basis points from 18.2 basis points, McWilton said.

“What’s pretty remarkable was that they could maintain their revenue margins in the face of pretty tough competitive forces,” said Keefe, Bruyette & Woods analyst Sanjay Sakhrani.

Total operating expenses during the quarter rose 16.3 percent to $730 million. The weakening dollar contributed to 2.3 percent of revenue growth and 1.6 percent of operating expenses.

Some financial companies have indicated weak debt-to-cash ratios will dampen their ability to repurchase stock. But MasterCard said its board on Monday approved an incremental $750 million stock repurchase, in addition to the $500 million buyback approved earlier this year.

Many of the banks that wrangled with bad debt in the third quarter — Citigroup Inc., JPMorgan Chase & Co., HSBC Holdings PLC and Bank of America Corp. — issue MasterCards and are MasterCard stockholders.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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