AmEx reaps “windfall profits” from antitrust suit

American Express will be $4 billion richer, thanks to the U.S. Department of Justice and a 2004 antitrust suit against Visa and MasterCard.

According to the New York Times and other sources, MasterCard has agreed to pay AmEx $1.8 billion on top of Visa’s earlier payout of $2.2 billion in the antitrust settlement. The Supreme Court in 2004 let stand an appeals court ruling that Visa and MasterCard had violated antitrust laws. With that decision, American Express then sued for damages.

The original antitrust case was brought by the Justice Department in 1998. Justice accused the two bank card systems of not competing with each other and stifling competition by requiring that their member banks not issue other systems’ cards. American Express and Discover Card had claimed they were harmed by not being able to have their cards issued by the members of Visa and MasterCard.

One of the major criticisms of antitrust policy is that often it shows little understanding of market evolution and instead — with its clout — helps determine the winners and the losers.

The response of American Express to the huge settlement noted that the monies will help the company weather the economic downturn and allow them future ability to increase their business investment:

With losses rising and the economy slowing, the deal comes at a time when American Express could use the money.

“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” the chairman and chief executive of American Express, Kenneth I. Chenault, said in a statement. “The antitrust settlement we’ve reached with MasterCard provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business.”

Seems like, even with this antitrust windfall, American Express is still having trouble competing in the market, despite Justice’s help.  Here’s a piece I wrote in 1998 for the Legal Times criticizing that DOJ action. It’s now up on CEI’s website.