Discover will get $2.75b from rivals
Visa, MasterCard OK settlement
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NEW YORK - Visa Inc. and MasterCard Inc., the world's largest credit card networks, said their legal settlement with Discover Financial Services from earlier this month will cost them $2.75 billion.
Visa said yesterday it will pay $1.9 billion. MasterCard will pay $862.5 million to settle, that company said.
The payments stem from a Discover lawsuit accusing MasterCard and Visa of blocking banks from issuing their cards. The parties settled Oct. 14 without disclosing the terms.
"This settlement will enable Discover to further strengthen its capital base," Discover chief executive David Nelms said.
Discover said it will receive about $862 million in the current quarter and as much as $472 million a quarter in 2009. The quarterly payments are contingent upon Discover achieving "certain performance levels in network sales volume," the company said.
Under its agreement with Morgan Stanley, which spun off the card company last year, Discover was to pay it the first $700 million recovered. The bank was also to receive half of any settlement proceeds above $1.5 billion, up to a maximum of $1.5 billion.
Discover said it has "notified Morgan Stanley that Morgan Stanley is in breach of the agreement," without elaborating. Discover said "the amount of Morgan Stanley's special dividend is a matter of dispute."
A Morgan Stanley spokesman declined to immediately comment.
US District Judge Barbara Jones in Manhattan ordered Visa and MasterCard in 2001 to stop forcing banks to choose between their cards and ones from Discover and American Express Co. Her order came after the Justice Department sued the credit card giants for antitrust violations. Visa sued in 2004, after the US Supreme Court refused to hear the case.
"Resolving this longstanding case on reasonable terms is in the best interest of Visa and our clients, cardholders, and shareholders," Visa chief executive Joseph Saunders said.
"We chose to settle this lawsuit to avoid the uncertainty and distraction of a lengthy jury trial," MasterCard general counsel Noah Hanft said.
American Express, which sued MasterCard and Visa separately, settled for $1.8 billion from MasterCard in June and $2.25 billion from Visa and its bank partners last year.
