MasterCard Worldwide agreed on Wednesday to pay US$1.8 billion to its credit card rival American Express to settle claims related to a 2004 antitrust lawsuit.
Seven months ago, Visa paid more than US$2.1 billion to American Express to put similar claims behind it as it raced ahead with plans for an initial public offering in March. MasterCard, which went public two years ago, had been under pressure to resolve the suit because uncertainty surrounding the litigation was one of the few clouds hanging over its rapidly rising stock.
The agreement brings the total that American Express has collected to more than US$4 billion, one of the richest settlements in corporate history. With losses rising and the economy in a slump, American Express can use the cash.
“Business conditions continue to weaken in the US and so far this month we have seen credit indicators deteriorate beyond our expectations,” American Express chairman and chief executive Kenneth Chenault said.
He said the settlement would provide a multi-year source of funds that would “lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business.”
Investors sent American Express shares down as they absorbed the news that even its customers, who tend to have strong credit histories, are falling behind on their payments. Its shares fell US$1.16, or 2.8 percent, to close at US$40.94. Shares of MasterCard, which processes payments but does not directly lend customers money, rose US$9.42, or 3.4 percent, to US$289.79.
The Supreme Court ruled in 2004 that Visa and MasterCard violated antitrust rules by barring their member banks from offering credit cards that could be used on rival payment networks.
American Express and Discover Financial quickly filed suits, seeking billions of dollars in damages based on the revenue they thought that they had lost.
The settlement is likely to put pressure on both Visa and MasterCard to strike similar deals with Discover Financial. Discover is seeking as much as US$6 billion from the two companies, court filings that were unsealed this month said.
Analysts expect any settlement with the card companies to be far lower than the US$4 billion collected by American Express because Discover’s user fees are much lower than those of American Express and the partnerships that it arranged with outside card issuers were less lucrative.
Shares of Discover fell US$0.71, or 4.7 percent, to US$14.33.
The industry has changed since the antitrust ruling. Bank of America and Citigroup, two of the largest credit card issuers, have signed a deal to offer their customers American Express-branded cards, and HSBC and General Electric’s financial service arms have reached agreements with Discover.
The talks between American Express and MasterCard had gone on for years and negotiations picked up steam after the Visa settlement was announced in November. In April, Kenneth Feinberg, who headed the Sept. 11 Victim Compensation Fund and served as a mediator in the Visa-American Express case, was brought in, but it still took several additional months to arrive at a settlement.
Under the terms of the deal, MasterCard will make quarterly payments to American Express for three years. It will book an after-tax charge of approximately US$1 billion for the costs.
Together, the Visa and MasterCard payouts will bring American Express about US$880 million a year for the next three years.
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