Visa to Add $150 Million to Litigation Escrow
07/19/2012| 06:06pm US/Eastern
Visa Inc. (V), the world's largest payment network, said Thursday it is adding $150 million to a litigation escrow following a proposed $6.6 billion settlement announced last week of numerous long-standing lawsuits brought by merchants over transaction fees.
The deposit brings the amount in the escrow account to $4.4 billion, or its share of the payments to be made to merchants under the pending deal. The escrow, set up as part of Visa's 2008 initial public offering, is tied to its Class B shares, which are held by U.S. banks that issue the payment network's cards. Those banks are essentially responsible for funding the account, shielding Visa's Class A shareholders from liability.
On Friday, Visa and MasterCard Inc. (>> Mastercard Inc) announced they would settle claims that they, along with many large banks that issue their cards, colluded over the fees that merchants pay each time a customer swipes a credit card. Those fees, known as interchange fees, are set by Visa and MasterCard but collected by card-issuing banks as revenue.
A sharing agreement struck last year called for Visa to pay 67% of any settlement and MasterCard to pay for the remaining 33%. Separately, MasterCard has a separate deal with its client banks, making it ultimately responsible for 12% of the total settlement and the client banks responsible for 21%.
Visa said Friday it plans to take a $4.1 billion charge for the quarter ended June 30 to formally reserve for its portion of the deal, which requires court approval and faces opposition from at least one trade group that was involved in the litigation.
The suits date back to 2005 and were brought by merchants including Safeway Inc. (>> Safeway Inc.), Kroger Co. (>> The Kroger Co.) and Publix Super Markets Inc. (>> Publix Super Markets Inc.), which argued there is a lack of competition amongst Visa, MasterCard and their bank clients, resulting in unfairly high interchange fees. The $6.6 billion price tag includes $6.05 billion set to be paid to a proposed class of merchants that could include several million retailers and a separate group of about 20 merchants that had also sued the card networks.
Also Thursday, Visa declared a quarterly dividend of 22 cents per share on its Class A shares payable Sept. 4.
Visa's shares were down 0.3% at $125.05 in after-hours trading.
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