MasterCard to Pay Up to $1.8 Billion to Settle American Express Lawsuit
June 25, 2008 By Justin McHenry
MasterCard Inc. and American Express announced today a lawsuit settlement that will result in MasterCard paying up to $1.8 billion to American Express. The settlement stems from American Express’ lawsuit against MasterCard over alleged anti-competitive practices that for years prevented American Express from forming banking relationships that could have widened its distribution. American Express settled a similar lawsuit against Visa last year for over $2 billion.
The MasterCard payments to American Express will be made in quarterly installments over three years.
The announcement of the settlement is timely for American Express in that the company’s CEO Kenneth Chenault says credit conditions have deteriorated “beyond our expectations” due to the worsening state of the economy, and the money gives the company “a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle.”
In 2006, American Express (and Discover as well) were given the ability to partner with banks to create their own payment networks like those of MasterCard and Visa after American Express successfully argued in the courts that MasterCard and Visa should not be allowed to force banks into exclusive contracts. The result of that decision opened up the ability for there to be, for example, a Citi American Express Card or a Bank of America American Express Card, where in the past those banks could only offer Visa- or MasterCard-branded cards. The lawsuits by American Express attempted to recoup monies it said were lost to it due to these exclusive agreements that Visa and MasterCard negotiated in exchange for the banks using their payment networks and branding their cards as “Visa” or “MasterCard.”
Since the lawsuits were initially filed, both MasterCard and Visa have become public companies and seen their stock prices skyrocket. Despite the huge payment amounts each is making to American Express, the settlements were seen as smart moves because they remove outstanding lawsuits that could cause concern in the eyes of current and future shareholders.