Discover antitrust suit seeks $6b from rivals
MasterCard calls charges 'baseless'
NEW YORK - Discover Financial Services is seeking $6 billion in damages from Visa Inc. and MasterCard Inc. in an antitrust lawsuit accusing the bigger credit card rivals of squashing competition.
The damages, which may be tripled, were included in confidential filings unsealed yesterday in federal court in the Southern District of New York. Visa said the amount was "dramatically overstated" and MasterCard called the suit "baseless." Both companies fell in New York trading.
"The numbers on potential damages Discover is seeking are large," Sanjay Sakhrani, an analyst at KBW Inc. in New York, said. "However we think a settlement for a meaningfully smaller amount still remains a likely scenario."
Discover, the fourth-largest credit card network, filed a lawsuit in October 2004 against Visa and MasterCard, claiming the two largest networks broke the law by barring member banks from offering rival cards. Visa agreed last year to pay $2.25 billion to American Express Co. in a settlement of a parallel suit, an amount Discover chief executive officer David Nelms called "cheap."
Visa and MasterCard issued separate statements saying Discover's credit and debit businesses haven't benefited much since the ban was lifted, letting banks issue Discover cards along with Visa or MasterCard cards.
"Discover has not seen any increase in its overall percentage of the credit card volume share" after the policies were changed, Sharon Gamsin, spokeswoman for Purchase, N.Y.-based MasterCard, said in the statement.
Visa, based in San Francisco, set aside $650 million for a possible Discover settlement from the $3 billion fund established after its initial public offering. MasterCard didn't set up a similar system when it went public, which means shareholders may be affected by future settlements, Sakhrani said. He rates Visa and MasterCard "outperform" and Discover "market perform."
The documents had been filed under protective order since the case began. The lawsuits by Discover and American Express follow a Supreme Court ruling that Visa and MasterCard violated antitrust laws in competing against smaller companies.
"I was a little surprised that AmEx settled as early or as cheap as they did," Nelms said in a Jan. 29 conference call.
Like New York-based American Express, Discover extends credit and runs a network that processes transactions for other lenders. Visa and MasterCard only operate networks and don't make loans to consumers.
Discover shares have declined 47 percent since the company was spun off a year ago by Morgan Stanley as the US housing slump hurts consumers' ability to repay debt of all kinds. The company's market valuation is about $7.6 billion, according to Bloomberg data.
MasterCard shares have almost doubled in the past year, and Visa shares have surged 84 percent since its IPO. The companies capitalize on consumers' increasing preference for using credit and debit cards over cash and checks.
