Discover Reaches $2.75 Billion Settlement with Visa, MasterCard
Discover Financial Services has announced that "it has reached an agreement with Visa Inc. and MasterCard Inc. in the settlement of a lawsuit seeking damages for practices that suppressed third-party issuing on the Discover Network and the acceptance of its cards. "
Under the terms of the settlement agreement, Discover expects to receive up to $2.75 billion in the settlement of its lawsuit against Visa and MasterCard. Discover will receive approximately $862 million of the settlement in the current fiscal quarter and up to approximately $472 million per quarter in 2009.
Visa said it is responsible for $1.8875 billion of the settlement amount. In a press release, Visa said that amount "includes $1.7425 billion from the escrow created under Visa's retrospective responsibility plan, $80 million from Visa Inc. to obtain releases from MasterCard, and an additional $65 million which will be refunded by Morgan Stanley under a separate agreement related to the settlement."
MasterCard announced it will pay $862.5 million reflecting the terms of a judgment-sharing agreement with Visa that was finalized in July, 2008. In addition, MasterCard reported that, in connection with the settlement, Morgan Stanley, Discover's former parent company, agreed to pay MasterCard $35 million.
Discover commented:
"This settlement will enable Discover to further strengthen its capital base in this challenging economy and also will support continued investment in growing our business, including broadening global acceptance, expanding network volume and growing our deposit franchise," said David Nelms, chief executive officer of Discover.
MasterCard commented:
"We believe Discover's lack of success resulted from decisions that created a business model that is not attractive to bank issuers. Nonetheless, we chose to settle this lawsuit to avoid the uncertainty and distraction of a lengthy jury trial. This result, which is in no way an admission of liability, is in the best interest of our shareholders, our customers and our company," said MasterCard General Counsel Noah J. Hanft. "We will continue to focus on out-competing Discover in the marketplace, where real-world performance is what counts."
Visa commented:
"Resolving this longstanding case on reasonable terms is in the best interest of Visa and our clients, cardholders and shareholders," said Visa Inc. CEO and Chairman Joseph W. Saunders. "Visa will continue to focus on providing the superior value and reliability that our clients and cardholders have come to depend on," said Saunders.
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