MoneyGram 2009 Annual Report Download - page 18

Table of Contents
We rely on a primary international banking relationship for cash management, ACH and wire transfer services. Should we not be
successful in maintaining a sufficient relationship with one of the limited number of large international banks that provide these services,
we would be required to establish a global network of banks to provide us with these services. This could alter the pattern of settlement
with our agents and result in our agent receivables and agent payables being outstanding for longer periods than the current remittance
schedule thereby adversely impacting our cash flow and revenue. Maintaining a global network of banks, if necessary, may also increase
our overall costs for banking services.
We and our agents are considered Money Service Businesses in the United States under the Bank Secrecy Act. The federal banking
regulators are increasingly taking the stance that Money Service Businesses, as a class, are high risk. As a result, several financial
institutions, which look to the federal regulators for guidance, have terminated their banking relationships with some of our agents. If our
agents are unable to maintain existing or establish new banking relationships, they may not be able to continue to offer our services which
could adversely affect our results of operations.
We may be unable to operate our official check and money order businesses profitably as a result of historically low interest rates and
our revised pricing strategies.
Our revenues in the official check business are generated primarily by the investment of funds we receive from the sale of official checks.
In turn, we pay commissions to our official check financial institution customers based on the outstanding balance produced by that
customer's sale of official checks, calculated at a rate based on short-term variable financial indices, such as the federal funds rate.
Fluctuations in interest rates affect the revenue produced by our investment portfolio and the commissions that we pay our official check
financial institution customers. There can be no assurance that interest rate fluctuations in our investments will align with the commission
rates we pay to our official check financial institution customers. Both our investment revenue and the commissions we pay decrease
when interest rates decline and increase when interest rates rise. However, because our commission rates reset more frequently than the
rates earned on our investments, changes in investment revenue will lag changes in commission rates. A rising interest rate environment
typically has a negative impact on our investment margin. In the past our investments included long-term and medium-term fixed income
securities, a portion of which were asset-backed securities. Our investment portfolio now focuses on highly liquid, short-term securities
that produce a lower rate of return. As a result, we have reduced the commissions we pay to our official check financial institution
customers and have implemented and/or increased per-item and other fees for our official check services. Despite these changes, there
can be no assurance that our official check business will operate profitably. Further, our official check financial institution customers
have a right to terminate their agreements with us if they do not accept these pricing changes, and we have numerous agreements with
these customers that will expire in 2010 and may not be renewed. There can be no assurance that we will retain those official check
financial institution customers that we wish to retain.
Earnings in our money order business are generated in part by the investment of funds we receive from the sale of money orders. As a
result of the composition of our investment portfolio, we earn a lower rate of return on the investment of funds we receive from the sale
of money orders. The continued success of our money order business is dependent on our ability to increase money order fees paid to us
by our agents.
Failure to maintain sufficient capital could adversely affect our business, financial condition and results of operations.
If we do not have sufficient capital, we may not be able to pursue our growth strategy and fund key strategic initiatives, such as product
development and acquisitions. We may not be able to meet new capital requirements introduced or required by our regulators. Given the
leveraged nature of the Company and the significant restrictive covenants in our debt agreements, there can be no assurance that we will
have access to sufficient capital. Failure to have such access could materially impact our business, financial condition and results of
operations.
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