MasterCard, the world's second-largest credit-card network, said it will pay American Expressup to $1.8 billion to settle a lawsuit that said MasterCard and Visa blocked banks from issuing cards from their rival.
American Express said that so far in June, credit conditions have weakened more than it expected, and the settlement will generate funds as the weakening economy cuts into its main business.
"You can't have a distressed real estate market, a consumer led slowdown, and maybe even a recession, with no impact on credit cards," said Michael Kon, analyst at Morningstar in Chicago.
"Credit costs are going up, and American Express is not an exception," Kon added.
MasterCard said it will take a $1 billion charge in the second quarter for the settlement. The size of the charge accounts for tax benefits and the fact that the settlement is paid out over time.
MasterCard's shares rose $12.33, or 4.4 percent, to $292.70 on Wednesday morning. The size of the settlement is in line with analysts' expectations, but the deal is positive for the company's shares because it removes an outstanding concern that the market had had about the credit card network, analysts said.
American Express' shares fell 40 cents, or 0.95 percent, to $41.70, amid concern about the credit environment.
The settlement stems from a 2004 suit American Express filed against MasterCard,Visa and eight banks that claimed the card associations' "anti-competitive practices" prevented 20,000 U.S. banks from issuing its credit-cards.
Discover Financial Services, which reports quarterly earnings on Thursday, is also suing Visa and MasterCard, and is seeking roughly $6 billion in damages. A trial has been set for September in U.S. District Court in New York.
American Express' comments about the credit outlook pulled Discover's shares down 4.3 percent to $14.39. Discover clients tend to be middle class, and will be hit harder by a weakening credit environment than American Express' customers, who tend to be wealthier.
With the MasterCard settlement and a similar deal with Visa and other parties late last year, American Express will be receiving as much as $4 billion through 2011.
MasterCard agreed to make 12 quarterly payments of $150 million each to American Express, beginning in the third quarter, assuming American Express processes a sufficient volume of transactions from cards issued by banks.
In November, Visa settled with American Express for about $2.1 billion, in a deal that combined with payments from other parties could net American Express up to $2.25 billion.