MasterCard has agreed to pay rival card operator American Express up to $1.8 billion to settle a lawsuit filed in 2004 that accused it of blocking access to the bank-issued card market in the US.
The suit, which was filed against Visa, MasterCard and eight major banks in November 2004, sought damages for business lost as a result of alleged anti-competitive business practices. At the time American Express said those practices had effectively locked it out of the bank-issued card business in the US.
MasterCard says beginning in Q3 2008 it will make 12 quarterly payments of $150 million, contingent upon the performance of American Express's US global network services business. MasterCard will take a $1 billion charge in the second quarter.
Explaining the decision to settle, Robert Selander, president and CEO, MasterCard, says: "Eliminating the uncertainty, time commitment, and expense of a prolonged court case is in the best interest of our shareholders, our customers and our management team."
Visa agreed to settle with American Express for up to $2.25 billion last November, leaving MasterCard as the sole defendant in the case. American Express, says the combined settlement of over $4 billion - the largest in US history - will help it survive the tough current economic conditions.
"Business conditions continue to weaken in the US and so far this month we have seen credit indicators deteriorate beyond our expectations," says Kenneth Chenault, chairman and CEO, American Express. "While it is too early to assess the impact of these indicators, the antitrust settlement we've reached with MasterCard provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business."
Although they both have settled with American Express, MasterCard and Visa still face an anti-trust suit from Discover Financial Services. Earlier this month court papers were unsealed revealing that Discover is seeking $6 billion in damages.
MasterCard and Visa both dispute the claim for damages, which could potentially be tripled at a trial set for September in New York.