Visa Inc. will pay American Express Co. up to $2.25 billion to settle a lawsuit alleging Visa illegally stifled competition to protect its position as the largest U.S. credit card network.
The truce announced Wednesday rids Visa of a potential albatross before the San Francisco-based company’s initial public offering of stock, which is expected to occur early next year.Besides raising financial uncertainties, the case threatened to raise embarrassing questions about Visa’s past business practices with a September trial date looming.The settlement also covers the owners of five major banks that issue Visa credit cards: U.S. Bancorp, Wells Fargo & Co., Washington Mutual Inc., J.P. Morgan Chase & Co. and Capital One Financial Corp.New York-based American Express plans to use a large chunk of the money to help cover the costs of rewarding current and future customers for using their credit cards more frequently.American Express’ three-year-old lawsuit painted an unflattering portrait of Visa, alleging the network operator conspired with some of its largest card issuers to thwart American Express’ growth.Visa and rival MasterCard Inc. for years imposed rules preventing U.S. banks from issuing American Express and Discover cards, triggering an antitrust complaint by the U.S. Justice Department.Shortly after the government’s case culminated in a U.S. Supreme Court ruling that allowed banks to work with Visa’s and MasterCard’s competitors, both American Express and Discover Financial Services sued to seek legal damages for all the years they were locked out.”The size of this settlement … underscores the seriousness of the damage done by the illegal boycott,” said American Express Chairman Kenneth Chenault.Visa didn’t acknowledge any wrongdoing in the settlement. “Visa is doing what is in the best interests of its membership and the new organization,” said its chief executive, Joseph Saunders.Visa USA’s member banks will absorb the costs of the settlement.American Express expects to collect several billion dollars more if MasterCard doesn’t settle before the scheduled September trial, said Louise Parent, American Express’ general counsel. The Visa settlement “enhances our confidence in the merits of the case,” Parent told analysts in a conference call.MasterCard remains confident about its defense against the allegations, spokeswoman Sharon Gamsin said.Investors, though, seemed less optimistic as Mastercard shares shed $2.47, or 1.2 percent, in Wednesday’s extended trading after closing at $199.48, up 8 cents for the regular session.American Express plans to book $1.13 billion of the Visa settlement in the current quarter. The remaining amount will consist of quarterly payments of up to $70 million during the next four years, contingent on American Express hitting certain financial targets in its U.S. credit card business.The fourth-quarter windfall is not expected to boost American Express’ profit during the period because management plans to use most of the money to pay for a program that gives away free products and services to big-spending cardholders.American Express shares fell $3.20, or 5.5 percent, to finish Wednesday’s regular session at $55.37, then recovered 25 cents in extended trading after the settlement was announced. Copyright 2007 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.