SAN FRANCISCO - American Express will receive up to $2.25 billion under an agreement with Visa Inc. to settle litigation that has been pending since 2004, according to statements by both credit card issuers.
Under the agreement, American Express will drop Visa as a defendant in a lawsuit alleging MasterCard, Visa, and their member banks illegally blocked the company from the US bank-issued card business.
Visa said it does not concede any liability through the settlement, which remains subject to the approval of Visa's member banks.
American Express will also drop other banks from the lawsuit, including JP Morgan Chase, Capital One, U.S. Bancorp, Wells Fargo, and Providian.
American Express expects to recognize an initial payment of $1.13 billion during the fourth quarter, which includes a $945 million payment by Visa and an additional payment by the bank defendants.
Beginning on March 31, Visa will pay up to an additional $70 million a quarter over four years up to a maximum of $1.12 billion.
The payments are contingent upon American Express meeting certain performance criteria.
Because of the settlement, American Express expects to book a number of significant additional expenses in the fourth quarter, including marketing and promotion investments, additional funding to support philanthropic activities and litigation-related expenses.
The company said it is also evaluating changes to its method of estimating liability for Membership Rewards, which could result in a significant one-time addition to reserves.
Visa's portion of the settlement will be funded by members of its subsidiary, Visa USA, through recent agreements with US financial institutions to finance obligations related to certain litigation, including the American Express case.
The funding plan was put into place in connection with Visa's proposed public offering, which is expected to take place in early 2008.
In October, Visa completed a restructuring through which Visa Canada, Visa USA, and Visa International became subsidiaries of Visa Inc. Visa Europe remains a membership association.
American Express said MasterCard remains the sole defendant in the lawsuit. American Express expects to seek billions of dollars in damages for lost business opportunities.
"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," said American Express chairman and chief executive Kenneth I. Chenault.
American Express shares fell $3.20, or 5.5 percent, to $55.37.