MasterCard settles litigation with American Express; to take $1 bln charge in Q2

( - New York-based credit card processor MasterCard Inc. said that it reached a deal to settle an outstanding litigation with its rival American Express Co. The maximum nominal amount of the settlement is $1.8 billion. MasterCard also said that it will take an after-tax charge of about $1 billion in the second quarter.

The agreement calls for 12 quarterly payments of $150 million by MasterCard, beginning in the third quarter of 2008. The payment is contingent upon the performance of American Express' U.S. Global Network Services business. On a tax-affected net present value basis, total settlement payments are estimated to be approximately $1 billion.

Meanwhile, American Express said the lawsuit alleged that MasterCard had illegally blocked American Express from the bank-issued card business in the U.S. The settlement deal follows American Express' earlier agreement with Visa Inc. (V | Quote | Chart | News | PowerRating) to settle similar claims for up to $2.25 billion.

American Express also said that the combined antitrust settlement is the largest in history of the U.S., and the company, subject to certain performance criteria, would receive more than $4 billion from the two credit card networks as settlement payment.

Further, the quarterly payment installments from MasterCard, together with the previously announced payments from Visa, will represent $880 million annually for American Express over the next three years, starting in the third quarter and running through mid-year 2011. American Express would also receive two subsequent quarterly payments of up to $70 million from Visa in the latter half of 2011.

Commenting on the settlement deal, MasterCard President and Chief Executive Officer Robert Selander said, "We are pleased to have reached a settlement with terms that will enable us to keep our strong balance sheet intact, so we can continue to build on our exceptional business results and vigorously pursue our strategy."

According to Kenneth Chenault, chairman and chief executive officer of American Express, the antitrust settlement with MasterCard would provide the company with a multi-year source of funds that would help it to lessen the impact of weak economy.

Recently, MasterCard provided financial guidance for 2008, reiterating its earlier forecast of double-digit revenue growth. The company also raised its long-term profit targets, citing a continuous increase in consumers opting for credit card payments.