Visa and American Express settle for $2.1 billion

NEW YORK Wed Nov 7, 2007 6:31pm EST

NEW YORK (Reuters) - Visa, the world's largest credit card network, has agreed to settle a three-year-old anti-trust lawsuit with rival American Express Co (AXP.N) for about $2.1 billion, Visa said on Wednesday.

The settlement stems from a 2004 suit American Express filed against Visa, MasterCard (MA.N) and eight banks that claimed the card associations' "anti-competitive practices" prevented 20,000 U.S. banks from using its credit card products.

The settlement must be approved by Visa's members and would be funded by members of Visa USA, not Visa Inc, which is preparing for an initial public offering, the company said.

Under the agreement, American Express will receive $945 million in March from Visa and an additional payment from the banks named in the case under a judgment sharing agreement. The rest, up to $1.12 billion, will be paid in installments of up to $70 million per quarter over four years, Visa said.

Visa said the total nominal amount paid under the settlement will be $2.065 billion. American Express said it could receive a maximum of $2.25 billion under the settlement, including the additional payment from the banks.

The settlement also resolves American Express's claims against US Bank Trust National Corp UBTNL.PK, Wells Fargo & Co (WFC.N), Washington Mutual Inc (WM.N), JPMorgan Chase & Co (JPM.N) and Capital One Financial Corp (COF.N) which were also named in the suit.

The lawsuit was originally filed in U.S. District Court in Manhattan, just one month after the U.S. Supreme Court rejected appeals by Visa and MasterCard of a ruling that the two credit card associations violated antitrust law by barring banks from issuing credit cards for rival networks.

The banks were sued because they had been members of one or both credit card associations' boards of directors.

The settlement leaves MasterCard as the lone defendant in the suit.

"We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years and to seek full compensation for the value that would have been generated for our shareholders," American Express Chairman and Chief Executive Kenneth Chenault said in a statement.

MasterCard is "confident in our position" and still planning to pursue the case in court, a company spokeswoman said on Wednesday. The case is set to go to trial in September, according to court documents, but MasterCard executives have also said in the past they would be open to settlement talks, the company said.

Craig Maurer, an analyst at Calyon Securities, said the settlement was a positive for Visa, removing uncertainty in advance of its initial public offering. The agreement also suggests "a near-term resolution" for MasterCard, which would remove a significant legal overhang on the company, he said.

"Given that MasterCard has traditionally had half the market share of Visa, we would estimate that any settlement with American Express would total approximately $1 billion," Maurer said on Wednesday in a note to clients.

According to Visa's latest prospectus filing, if the suit had to go to trial, the company could have faced triple damages because the suit was brought under federal antitrust laws.

(Additional reporting by Martha Graybow)

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