American Express Settles with Visa, Receives $2.25B

American Express said Wednesday it agreed to dismiss Visa from a 2004 lawsuit that alleged Visa, MasterCard and their member banks illegally blocked AXP from the bank-issued card business in the U.S. The maximum $2.25B settlement will be funded by Visa USA's member banks, which still must approve the plan. Visa said its nominal payout is $2.065B, with an accounting reserve of $1.9B and a net present value to Visa of $1.8B. The settlement removes the overhang of litigation from Visa Inc.'s planned IPO. It also resolves claims against individual banks J.P. Morgan Chase, Capital One, U.S. Bancorp, Wells Fargo, Providian and Washington Mutual who will be dropped from the suit, leaving MasterCard as the sole defendant and liable for the full amount of damages sought by AXP. "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," AXP CEO Kenneth Chenault said. Calyon Securities said, however, the deal is positive for MasterCard as it would suggest a near-term resolution for MasterCard, as well, with a likely payment of about $1B based on the amount payable by Visa. Before the announcement, MasterCard had said it would "consider a settlement if it were commercially reasonable and in the best interests of our company." On Wednesday, it said, it is "confident in our position" and was still planning to pursue the case in court.

Sources: Press release, Bloomberg, Thomson Financial, Reuters
Commentary: American Express: Don't Leave Home Without It • Five Credit Card Stocks to Consider When Making Your Next Purchase
Stocks to watch: AXP, MA, JPM, WFC, WM, COF, USB, PVN. Competitors: DFS
Earnings call transcript: American Express Q3 2007

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