Visa Inc. (V:US) and MasterCard Inc. (MA:US), the biggest payment networks, are prepared to settle a seven-year lawsuit brought by retailers to cut their credit-card costs later this month, three people briefed on the talks said.
Intensity of the talks has increased and a settlement (MA:US) may come as soon as late next week, said two people with knowledge of the matter. The deal may include payments to retailers and a temporary cut in interchange rates or “swipe fees” tacked on to each card purchase, said the people, who asked for anonymity because they weren’t authorized to speak publicly.
Analysts at Morgan Stanley reported that top-level Visa and MasterCard executives (V:US) participated in talks on the agreement, which the people said could still be delayed or collapse.
An accord would end a dispute that began in 2005, a year before MasterCard’s initial public offering (MA:US) and three years ahead of Visa’s. Merchants alleged the two firms violated antitrust law by fixing swipe fees, which average 2 percent of the purchase price. The proceeds go to card-issuing banks, generating more than $40 billion a year for U.S. lenders.
The agreement would avert a trial set to begin in September before U.S. District Judge John Gleeson in Brooklyn, New York. Investor speculation that a settlement may be at hand increased after Morgan Stanley analysts led by Glenn Fodor issued a report titled “Something appears to be brewing in Brooklyn.”
Visa Chief Executive Officer Joseph W. Saunders and Chris McWilton, MasterCard’s president of U.S. markets, attended at least one day of settlement talks in June, Fodor wrote.
“Our conversations with legal experts indicate that while it is normal for a judge to mandate the parties to participate in settlement discussions, it is not typically the norm for the highest levels of management to attend,” the analysts wrote in a June 25 note. “There is a very low likelihood of this case going to trial, and these actions by the court support that.”
The involvement by top executives may indicate more complex settlement terms such as changes to business practices, Portales Partners LLC analysts led by Charles Peabody wrote in a report today. The total paid by the networks and card-issuing banks may be $6.5 billion to $10 billion, the Portales analysts wrote.
Erica Harvill, a spokeswoman for San Francisco-based Visa, and MasterCard’s James Issokson in Purchase, New York, declined to comment on the timing of the settlement. Lawyers for the plaintiffs including K. Craig Wildfang, of Robins, Kaplan, Miller & Ciresi LLP, and Bart Cohen, of Berger & Montague PC, declined to comment. Five other lawyers for the plaintiffs didn’t respond to e-mails and phone calls. One person said an accord make take longer than a week.
Visa, the world’s biggest bank-card network, had $4.28 billion in uncommitted funds set aside to cover litigation at the end of March. No. 2 MasterCard took a $495 million charge in the fourth quarter for its portion of a potential settlement, according to a statement.
In February 2011, the defendants agreed that Visa would be responsible for two-thirds of any settlement and MasterCard would pay about one-eighth. Visa gained 25 percent this year in New York trading (V:US) through yesterday, and MasterCard advanced 19 percent.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).
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