Visa has agreed to pay rival card
operator American Express $2.25 billion in settlement of an
anti-trust lawsuit. The suit was filed in November 2004, and
alleged that Visa and MasterCard, plus eight major banks, acted to
obstruct Amex’s access to the bank-issued card market in the
US.
Amex stated at the time that it had been effectively locked out
of the bank-issued card business in the US, and sought damages for
business lost as a result of anti-competitive business
practices.
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News of the outcome is likely to put pressure on Visa to come to a
similar deal with Discover Financial, which also filed suit in
2004. While the settlement figure with American Express establishes
a financial precedent, it is unclear what the exact figure for
damages owed to Discover Financial will be.
The announcement will also put pressure on MasterCard, which is the
target of similar lawsuits by both American Express and Discover.
MasterCard is the sole remaining defendant in the American Express
suit.
Kenneth Chenault, chairman and chief executive of Amex, said in a
statement: “The size of this settlement, along with earlier court
rulings, underscores the seriousness of the damage done by the
illegal boycott.
“We plan to move forward with the litigation to hold MasterCard
accountable for the illegal actions that blocked banks from working
with us for many years and to seek full compensation for the value
that would have been generated for our shareholders.”
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By GlobalData$10bn Visa flotation
On 21 November, the day after news of the $2.25 billion settlement,
Visa disclosed that it plans to raise up to $10 billion through its
forthcoming stock market flotation, which is expected to take place
early next year. The move follows the successful initial public
offering (IPO) of Visa’s rival, MasterCard, earlier last year. The
IPO was priced at $39 but MasterCard shares have since soared in
trading, rising nearly fivefold.
Under the agreed settlement, Amex will obtain an aggregate maximum
payment of $2.25 billion – the largest amount ever paid to resolve
an anti-trust matter. Amex plans to book $1.13 billion of the
settlement figure in the fourth quarter of 2007.
The remaining sum will be payable in instalments of up to $70
million per quarter over the next four years, subject to achieving
certain quarterly performance criteria within the US network
services business of Amex. The settlement will be financed by
Visa’s member banks.
Amex earlier dropped its action against three financial
institutions that began issuing its cards – Bank of America,
Household International (now owned by HSBC) and USAA Federal
Savings Bank. The remaining individual banks named in the lawsuit –
JPMorgan Chase, Capital One, US Bancorp, Providian and Wells Fargo
– will also be dropped as defendants.
Supreme Court ruling
The move comes nearly three years after the US Supreme Court ruled
that both Visa and MasterCard infringed antitrust rules by
forbidding their member banks to offer their customers credit cards
that could be used on alternative payment networks.
Moshe Orenbuch, an analyst at Credit Suisse First Boston, told
Cards International, a sister publication to RBI:
“Amex is willing to proceed to trial against MasterCard in
September 2008 and believes that it can win, and that MasterCard
would then be liable for all the damages.
“Amex believes that the damages are the profits foregone from lost
merchant discount revenues on bank-issued Amex cards, as well as
lost profits from decreased merchant acceptance and related lower
fees. The damages could be trebled if it went to trial and American
Express wins. In effect, MasterCard now becomes liable for all the
damages despite the payments made by Visa.”
