In a follow up to a previous post, Discover announced their settlement amounts with Visa and MasterCard for less than half of what they were originally seeking.The V/MC Duopoly said their legal settlement with Discover Financial Services from earlier this month will cost them $2.75 billion.
Discover was seeking $6 Billion.
In a statement distributed by PR Newswire Visa said that it will pay $1.8875 billion. Of that, $1.7425 billion will come from an existing escrow account.
MasterCard will pay $862.5 million to settle, that company said in a separate statement. MasterCard will take a $515.5 million after-tax charge, according to the statement.
In an interesting side story, Morgan Stanley was supposed to get some of that, but Discover said they breached the agreement so "no dough." More on that below...
American Express, which sued MasterCard and Visa separately, settled for a little over $4 Billion in June.( $1.8 billion from MasterCard and $2.25 billion from Visa and its bank partners).
The payments stem from a Discover lawsuit against MasterCard and Visa accusing them of blocking banks from issuing their cards. The parties settled on Oct. 14 without disclosing the terms. "This settlement will enable Discover to further strengthen its capital base,'' Discover Chief Executive Officer David Nelms said in a third statement. He said his company will develop its business by ``broadening global acceptance, expanding network volume and growing our deposit franchise.''
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 Riverwoods, Illinois-based company said.
Here's an interesting twist
Under its agreement with New York-based 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, according to regulatory filings.
Discover said in its statement that 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.''
Morgan Stanley filed a lawsuit in New York State Supreme Court last week seeking a declaratory judgment "to resolve this issue definitively,'' Mark Lake, a company spokesman, said in a statement. There is absolutely no basis for Discover's claim that the agreement was breached,'' Lake said. The firm "is due to receive approximately $1.2 billion pretax,'' he said.
U.S. 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 U.S. Supreme Court refused to hear the case.
Reasonable Terms
Resolving this longstanding case on reasonable terms is in the best interest of Visa and our clients, cardholders and shareholders,'' Visa CEO Joseph Saunders said in the statement. We chose to settle this lawsuit to avoid the uncertainty and distraction of a lengthy jury trial,'' MasterCard General Counsel Noah Hanft said in that company's statement.
Visa, based in San Francisco, is the largest credit-card company, with 51 percent of the U.S. credit- and debit-card market last year, according to the Nilson Report, MasterCard, the second-largest card company and based in Purchase, New York, accounted for 28 percent. New York-based American Express is third with 17 percent, according to the newsletter. Discover's share of the market was 3.8 percent.
Visa had agreed with MasterCard to pay the bigger share of any settlement, primarily based on relevant business volumes. The value of U.S. credit card purchases was $2.17 trillion in 2007, up from $426 billion in 1993. The case is Discover Financial Services Inc. v. Visa USA Inc., 04-cv-07844, U.S. District Court, Southern District of New York (Manhattan).
Conference Call and Webcast Information
A conference call to discuss this announcement, as well as the impact of elevated funding costs on Discover's fourth quarter, was held this morning, at 7:30 a.m. Central time.
The general public is invited to listen to the call by dialing 866-362-4820 (U.S. domestic) or 617-597-5345 (international), passcode 13604805, or via a live audio webcast through the Investor Relations section of the Web site, www.discoverfinancial.com.
For those unable to listen to the live broadcast, a replay will be available on our Web site or by dialing 888-286-8010 (U.S. domestic) or 617-801-6888 (international), passcode 78817365, beginning approximately two hours after the event. The replay of the conference call will be available through Nov. 28, 2008.
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