MasterCard settles American Express lawsuit

American Express has reached a $1.8bn settlement with MasterCard over a lawsuit that claimed MasterCard, Visa and some of their member banks had blocked financial companies from issuing credit cards through American Express.

The settlement follows an earlier agreement with Visa for $2.25bn, making the combined antitrust settlement the largest ever in the US. It is likely to put pressure on both Visa and MasterCard to strike a deal with Discover Financial, which is seeking billions of dollars in damages for similar claims.

Neither MasterCard nor Visa admitted to liability as part of the settlements.

American Express’s suit against the two payment processors and eight of their member banks was launched in 2004. It came after the US Supreme Court let stand a ruling that forced Visa and MasterCard to allow member banks to issue credit cards on rival networks.

Ken Chenault, American Express chairman and chief executive, said the proceeds from the MasterCard settlement, which will amount to quarterly payments of $150m over the next three years, would help curb the effects of a slowing economy.

“Business conditions continue to weaken in the US,” he said, adding that “the antitrust settlement …provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle”.

American Express shares closed 2.8 per cent lower at $40.94 in New York.

Together with the payments from Visa, American Express expects to receive $880m a year for three years. However, the size of the payments is contingent upon the performance of American Express’s US global network services business. MasterCard said it would take a $1bn charge in the second quarter related to the settlement.

Robert Selander, MasterCard chief executive, said: “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.”

MasterCard, which went public two years ago, had been under pressure to resolve the suit because uncertainty surrounding the litigation was one of the few clouds looming over its stock. Shares in MasterCard rose by 3.4 per cent to $291.51 close at $289.79 on Wednesday.

Visa settled with American Express in November 2007 and made an initial payment of $945m. It used proceeds from its initial public offering to make an additional payment in March and will pay $70m each quarter until the full settlement is reached.