Expanding its presence in China, on Jan 19, MoneyGram International Inc. (MGI) has announced its partnership with Bank of China, to enhance its money transfer service business by extending its service to the bank’s 10,000 domestic branches across the country, over a period of time. Through this alliance, MoneyGram has added yet another strong Fortune 500 company to its global network. The partnership was confirmed after MoneyGram passed the six-month trial project that was carried across 240 branches of the bank.

Money transfer business remains the driving force for MoneyGram and going forward, management projects a strong remittance market in China. Management estimates an annual remittance market of $25 billion in 2010 for China. Through this deal, MoneyGram expects to sow the seeds of further expansion of its money transfer services in several other countries in the Asia Pacific region. Beginning in Jan, 2010, MoneyGram will start operating through the bank’s key territories across the southern and eastern coast of China and will continue to increase its operational size in the next couple of years.

Hence, the company is in the process of evolving advanced ways for establishing itself across the region. Through its alliance with Bank of China, MoneyGram will be able to support its regional strategy of constant improvement of the money transfer services and expand its presence by more than three-fold in China.

However, the global financial crisis has dampened the growth structure across the money transfer service industry and MoneyGram did not escape unscathed. The company’s operating earnings have been marred by several one-time charges and fixed overheads. Moreover, a weak demand growth in highly exposed markets such as Mexico and Spain adversely affects the average fees for money transfer services. Even the fiscal and monetary regulations that are expected to come up in China can cause stringency in the foreign company operations.

Nevertheless, MoneyGram continues to realign its investment portfolio, expand its market exposure globally and restructure its operations from time to time to adapt to the crisis period. Yet the company has several issues to deal with in the near term, such as cost-cutting initiatives, debt-repayment strategy, utilization plans for cash and equivalents and generating sufficient cash flow for its operations. Unless these concerns are addressed, the company may continue to generate loss in its business. Hence, we recommend a Neutral stance on the stock.

Zacks Investment Research

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