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Monday, June 30, 2008

AmEx to get doozie of a settlement

American Express Co. reached an agreement with MasterCard Worldwide (formerly MasterCard Inc.) on June 25, 2008, to drop its lawsuit seeking monetary damages from lost business opportunities, after alleging that MasterCard illegally blocked AmEx from the bank-issued card business in the United States. Under terms of the agreement, MasterCard will pay AmEx up to $1.8 billion.

Visa Inc. was also included in the November 2004 lawsuit, but settled with AmEx in November 2007 for $2.25 billion. Both lawsuits followed an October 2004 ruling by the U.S. Supreme Court, in an antitrust case brought by the U.S. Justice Department in 1998. It accused Visa and MasterCard of collusion to fend off and restrain competition.

Though it did not attach an official dollar amount to the suit, AmEx claimed it lost billions of dollars because of the two card giants' practices. The company also said it was prevented from launching a new generation of products and could not compete on a level ground with Visa and MasterCard because it was not allowed to provide its own payment network to banks.

Eight others in collusion

In addition to Visa and MasterCard, the AmEx suit accused banks that had executives on the card Associations' boards of directors of anticompetitive practices: Said banks include JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp., U.S. Bancorp, HSBC Card Services Inc.'s Household Bank, Wells Fargo & Co., Providian Financial Corp.'s national bank and USAA's savings bank.

David Boies, Lead Attorney on the case, declined to say how the eight banks were chosen. He said only that they "participated most directly in the conduct that is at issue in the complaint" or had been "the greatest beneficiaries" of the anticompetitive conduct.

"The Justice Department detailed the ways, because of Visa and MasterCard rules, that American Express was blocked from entering into arrangements with banks," said David A. Bialto, an antitrust attorney in Washington, D.C. "The question is, how much American Express was damaged … because they certainly were damaged for a period of time."

Plans to step up investments

Following AmEx's settlement with Visa in November 2007 and the dismissal of all the bank defendants, MasterCard was the sole remaining defendant in the antitrust suit. The case will now be dismissed. "The $4 billion represents a very satisfactory resolution of our lawsuits against the country's two major card associations," said Kenneth I. Chenault, AmEx's Chairman and Chief Executive Officer.

"While it is too early to assess the impact of these indicators, the antitrust settlement we've reached with MasterCard provides us with a multiyear 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." The settlement calls for 12 quarterly payments of $150 million from MasterCard beginning the third quarter of 2008, and is contingent upon AmEx's U.S. Global Network Services business achieving certain quarterly performance criteria. By agreeing to drop the lawsuit, AmEx stands to receive the largest combined antitrust settlement in U.S. history. end of article

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