Today, President Obama is expected to sign new legislation that will place limits on the fees and interest rates charged to consumers using credit cards (see WSJ article). While we can argue the benefits and unintended consequences of such legislation (doesn't it seem like we are using the term "unintended consequences" a lot lately), from a trading and investment perspective, there is an expectation that revenue generated by the fees and interest rates - which are now being scaled back - will begin to dry-up for many credit card companies. Subprime borrowers and others holding balances are the cash cows for credit card companies, given that those that don't really need credit tend to use the cards more for convenience, or as a way to gain points and a month of "free" float before paying off their balance in-full.

Estimates have the credit card industry losing $10 billion in revenue from overall interest income. In addition, companies such as Bank of America, Citigroup, Discover, and Capital One Financial are estimated to get between approximately 27-30 percent of their business from subprime customers. Others potentially hit by the new legislation include General Electric - the biggest issuer of private-label cards in the U.S., and Target, which issues its own cards to customers. Unfortunately, Citigroup also issues about 22 percent of all private label cards - not that they need another reason to lose revenue.

While the market still needs to shake out this latest development, it seems that taking away a large source of revenue, and making it more difficult for companies to price their risk, cannot be good for the credit card companies. The general impact on retail sales, increased costs to credit-worthy customers (annual and monthly fees), and the availability of credit for everyone, also seem to be things that cannot be ignored.

There is an interesting post over at the Business Insider Clusterstock blog regarding the bonus tax bill that recently passed in the House and is now on its way to the Senate. The bill was written mainly in response to the recent AIG bonuses that Congress wrote into the previous 1000+ page bill that no one read (or had time to read). Apparently, some members of Congress have finally gotten around to reading the bill they passed - or at least their constitutes did - causing outrage, both real and opportunistic. The bonus tax would essentially apply a 90% tax rate to bonuses paid at firms which have taken over $5 billion from the Government TARP program. While I cannot really disagree with trying to spend bailout money wisely, attacking the bonuses in this way after the same body passed them just weeks before seems not only wrong, but reactionary. In addition, you have to wonder why Congress decided on the 90 percent number. If the bonuses are unacceptable, why not 100 percent? Is 10 percent OK for poor performance, while 20 percent is an outrage? Furthermore, why are only big companies affected? Is it just the size, or is there some other guiding principal? In case you are interested, the companies that reach the $5 billion bailout threshold and are potentially affected by the bill include some of the usual suspects, along with a few others who want to get out of the lineup as quickly as possible:

• AIG
• Bank of America
• Citigroup
• General Motors
• GMAC Financial Service
• Goldman Sachs
• JPMorgan Chase
• Merrill Lynch
• Morgan Stanley
• PNC Financial Services Group
• US Bancorp
• Wells Fargo
  

While it looks like the bill will fail in the Senate, since it seems to be unconstitutional (kind of a sticking point), it certainly gives you an idea of which companies are likely to be the targets of future hostility against wealth creation. It also gives you an idea why more and more companies and states are looking to pay back TARP money as quick as possible, and reject any future stimulus and TARP-type funding. Investors can certainly expect the companies on this list to have difficulty going forward as their best talent moves to companies not affected by any future legislation impacting companies on the government dole. Their competitors, on-the-the-hand, are going to have a field day snatching up talent that is trying to escape lower paying government wages, along with the restrictions placed on such businesses.

A few weeks ago in a post I made a comparison of how both baseball and the markets had a steroid problem, although with the markets the steroids were in the form of leverage, loose lending standards, poor risk management, complex derivative products, unrealistic valuations, and unethical behavior, among others. Another comparison is unfortunately coming to bear. As with baseball, as long as the markets and the government continue to focus more on the juicers, and less on the solutions for fixing the current problems, both will continue to suffer and fail to reach their objective - reminding us of the opportunity that the markets have for making our lives better. Even though daily 450 foot home runs are a thing of the past, hitting a natural home run is still a thing of beauty, and something to be encouraged, both on the field and in the markets.