Durbin Amendment's Biggest Winner May Be KKR
NEW YORK (TheStreet) -- Banks say the Durbin Amendment has cost them billions in revenues, and while figuring out where all the money is going isn't an easy task, one big winner looks to be giant buyout firm KKR & Co.(KKR) .
The Durbin amendment, named after Sen. Richard Durbin (D., Il.) and part of the 2010 Dodd Frank financial reform legislation, limits so-called interchange fees merchants pay to banks on debit card transactions. It took effect Oct. 1 and has reduced fees to 24 cents from a previous average of 43 cents, according to a May 1 report by the Federal Reserve.
In its first quarter report for 2012, JPMorgan Chase(JPM) estimated "the effect of the Durbin Amendment will likely reduce annualized net income by approximately $600 million."
Bank of America(BAC) said first quarter "card income decreased $371 million primarily driven by the implementation of interchange fee rules under the Durbin Amendment."
Wells Fargo(WFC) card fee income was $654 million in first quarter 2012, compared with $957 million a year ago. The bank attributed the difference to Durbin, but said it was "partially offset by growth in purchase volume and new accounts."
A sizeable amount of the banks' lost revenues appears to be translated into savings for the nation's largest retailers, but while several industry giants, including Wal-Mart(WMT) , Target(TGT) Walgreen Company(WAG) and The Home Depot(HD) wrote comment letters to the Federal Reserve supporting a tough rule aimed at reducing interchange fees, none of these companies appears to have disclosed anything about how much they've saved.
In its letter to the Fed, The Home Depot said interchange fees were the company's third-highest operating cost after occupancy and wages. The Home Depot CFO Carol Tome told investors during an earnings call in Feb. 2011 that an initial draft of the rule suggested the benefit to the company "could be $35 million a year." Under that proposal, interchange fees were capped at 12 cents per transaction. They were eventually capped at 24 cents, suggesting a benefit to The Home Depot of $17.5 million.