The Justice Department's legal case against American Express will not benefit consumers and will weaken competition, said Jeff Campbell, executive vice president and CFO of American Express.
Speaking during Amex's second-quarter earnings call July 29, Campbell categorized the Justice Department's claims that American Express' fees prevent retailers from reducing costs as "unfair."
"It's unfair to allow merchants that have agreed to honor our cards to discriminate against American Express and our card members," Campbell said. It's also unfair to interfere with how consumers pay, Campbell said.
The rules at issue in the suit prevent merchants from providing a discount to consumers who pay with a rival's particular card unless the retailer provides the same discount to Amex customers. The rules also prevent retailers that accept Amex from using other methods such as saying, "I'd prefer that you pay with MasterCard" to steer their customers. Discover has also claimed Amex's rules prevent Discover from lowering its own charges.
The changes being sought by the Justice Department would be a boon for MasterCard and Visa, said Evan Chesler, a partner at Cravath, Swaine & Moore representing Amex in the trail, during testimony earlier in July. Consumers have fewer than 55 million Amex cards, whereas more than 1 billion cards in the United States carry the Visa or MasterCard logo. Retailers are aware that whenever they discourage the use of American Express, customers are likely to have another plastic card in their wallets, Amex argues. Campbell would not address the "market power" issue during July 29th's earnings call.
The trial should conclude later this quarter and will likely be followed by a decision and appeal process for several more months, Campbell said.
"Much as we may like to, it's not appropriate or beneficial to offer color commentary. We will make our argument in the courtroom. We believe our defense is strong," Campbell said.
American Express reported second-quarter net income of $1.53 billion, up 8.5% from $1.41 billion the prior year. Diluted earnings per share were $1.43, up 13% from $1.27 the prior year. The average estimate of 28 analysts surveyed by Bloomberg was $1.38 per share.
U.S. Card Services reported second-quarter net income of $770 million, up 4% from $743 million in 2013. Consumer spending rose 9% globally, compared to 7% growth in the preceding quarter and 8% growth in the second quarter of 2013.
The company's overall net income for the quarter included a gain of $626 million from the closing of American Express' spinning off its travel business into a joint venture with Certares. American Express' Global Commercial Services unit reported second-quarter net income of $561 million, up from $226 million the prior year, a 148% increase the company attributed primarily the creation of the travel venture.
The gain American Express recognized from the travel venture has allowed the company to increase spending on initiatives such as marketing for the Amex Everyday Credit Card and American Express Serve prepaid account, said Kenneth Chenault, chairman and CEO of Amex, in the company's press release. Amex's stronger earnings in the second quarter 2014 were also partly due to consumer spending recovery after the harsh winter, Chenault said.
"We have a number of attractive investment opportunities across our core business and from newer initiatives," said Campbell, adding the company is also focusing on digital and mobile initiatives such as its partnership with Uber and its encouragement of broad market adoption of mobile payments.
