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Travel and financial services giant American Express Co. on Monday sued Visa and MasterCard as well as eight banks for damages stemming from anti-competitive practices that prevented American Express from issuing cards through U.S. banks. The New York-based company did not say exactly how much it was seeking, but said it expected the total would be “in the billions of dollars.” The suit, filed in U.S. District Court in Manhattan, is the second against the two biggest card associations in America, Visa USA Inc. and MasterCard International Inc. Last month, Discover Financial Services, a unit of New York-based Morgan Stanley, filed a similar federal suit against MasterCard and Visa seeking unspecified damages for practices that kept it out of the lucrative bank market. Both lawsuits follow an Oct. 4 ruling by the U.S. Supreme Court in an antitrust case brought by the Justice Department that accused Visa and MasterCard of restraining competition. The high court’s decision let stand a lower court ruling requiring Visa and MasterCard to allow member banks to issue competing cards. That cleared the way for American Express and Discover to begin partnering with U.S. financial institutions. Suits filed under antitrust law can seek triple damages. Also Monday, Discover Financial Services announced that it was merging with PULSE EFT Association card processing network in a deal valued at $311 million. It was Discover’s first deal with an American financial firm since the Supreme Court ruling. The merger agreement, which is subject to regulatory and PULSE member approval, is expected to close in approximately 60 days. “We believe the combination of the PULSE and Discover networks will create a leading electronic payments company offering a full range of products and services that will represent an attractive choice for financial institutions, merchants and consumers,” said David W. Nelms, Discover’s chairman and chief executive. “Together, we intend to be a robust competitor in the important and rapidly growing debit market.” Discover hasn’t yet announced any deals. He said the combined companies would “join the forces of PULSE and its 4,100 member banks, credit unions and savings institutions with Discover network and its more than 4 million merchant and cash access locations.” On Monday, shares of American Express rose 37 cents to close at $56 on the New York Stock Exchange, where Morgan Stanley’s shares rose 7 cents to close at $53.20. In addition to Visa and MasterCard, the American Express suit names banks that have executives on the card associations’ boards. They include JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp., U.S. Bancorp, HSBC Card Services’ Household Bank, Wells Fargo & Co., Providian Financial Corp.’s national bank and USAA’s savings bank. Visa and MasterCard are nonprofit associations made up of thousands of bank members. MasterCard called the action by American Express “a misguided lawsuit.” American Express “will face significant obstacles that the government didn’t face in its lawsuit,” MasterCard spokeswoman Sharon Gamsin said. “This will be a very difficult case, as American Express will need to prove it was injured and suffered damages … claims we believe the reality of the marketplace demonstrates are entirely unfounded.” Visa said in a statement that it would “vigorously fight” the lawsuit. “It’s time for American Express to stop looking to the courts to solve its problems and compete in the marketplace instead,” the Visa statement said. Experts said the American Express suit was not unexpected. “The Justice Department documented in detail the ways, because of Visa and MasterCard rules, that American Express was blocked from entering into arrangements with banks,” said David A. Balto, an antitrust attorney with Robins, Kaplan, Miller & Ciresi in Washington, D.C. “The question is, how much American Express was damaged … because they certainly were damaged for a period of time.” Bert Ely, a bank consultant based in Alexandria, Va., said he thought American Express “is looking for a clear shot at at least trying to sell banks on offering the American Express card along with Visa and MasterCard.” Louis Parent, general counsel for American Express, told a news conference that the suit was being brought because of “the obligation to our shareholders to seek to recover our damages.” David Boies, a founding partner of Boies, Schiller & Flexner and lead attorney on the case, told reporters that the American Express and Discover cases might be combined during the initial “discovery” period in the court. But, he added, he expected they would be tried separately. “The arguments each of us will make are particular to our approaches, and some defenses are particular either to Discover or to us,” he said. Boies declined to say how the eight banks were chosen as targets in the case, saying only that they “participated most directly in the conduct that is at issue in the complaint” or had been “the greatest beneficiaries” of the anti-competitive conduct. Earlier this month, credit card issuer MBNA Corp. began rolling out its new American Express-branded cards in the first deal between American Express and a U.S. financial institution. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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