MasterCard Worldwide has agreed to pay $1.8 billion to credit card rival American Express as part of a settlement related to a 2004 antitrust lawsuit, The New York Times reported.
Seven months ago, credit card juggernaut Visa paid more than $2.1 billion to American Express to put similar claims behind it as it raced ahead with plans for an initial public offering in March, the newspaper reported.
MasterCard went public two years ago and had been under pressure to resolve the suit because uncertainty surrounding the litigation was one of the few clouds hanging over its rapidly rising stock.
The agreement brings the total that American Express has collected to more than $4 billion, one of the richest settlements in corporate history.
“Business conditions continue to weaken in the U.S., and so far this month we have seen credit indicators deteriorate beyond our expectations,” said Kenneth Chenault, chairman and CEO at American Express, adding that the settlement would provide a multiyear source of funds that would “lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business.”
Investors sent American Express shares down as they absorbed the news that even its customers, who tend to have strong credit histories, are falling behind on their payments.
The company’s shares fell $1.16, or 2.8%, to close at $40.94. Shares of MasterCard, which processes payments but does not directly lend customers money, rose $9.42, or 3.4%, to $289.79.
MasterCard CEO Robert Selander said in a separate statement that the settlement eliminated “the uncertainty, time commitment, and expense of a prolonged court case” and kept the company’s balance sheet intact.
The Supreme Court ruled in 2004 that Visa and MasterCard violated antitrust rules by barring their member banks from offering credit cards that could be used on rival payment networks. American Express and Discover Financial filed suit, seeking billions of dollars in damages based on revenue they thought they’d lost.
The settlement is likely to put pressure on both Visa and MasterCard to strike similar deals with Discover Financial. Discover is seeking as much as $6 billion from the two companies, according to court filings that were unsealed this month.
In November, Visa agreed to pay American Express $945 million, followed by quarterly payments of about $70 million until the full amount was paid. Together, the Visa and Master Card payouts will bring American Express about $880 million a year for the next three years.