With its deal to issue American Express cards to Bank of Hawaii customers, American Express Co. may have found a new way to circumvent Visa and MasterCard rules that it says hinder it from making deals with banks.

American Express has spent three years trying to coax U.S. banks to issue its card brand, with no success. It says the main barriers are policies maintained by the card associations that forbid Visa and MasterCard issuers from issuing any other brands. Those policies are the centerpiece of a Justice Department antitrust case against Visa U.S.A. and MasterCard International that is awaiting resolution in federal district court in New York. American Express contends that banks will not work with it because they fear getting kicked out of Visa and MasterCard. On the other hand, American Express' deal with Bank of Hawaii - plus a deal earlier this year to buy the ShopRite MasterCard portfolio from Valley National Bank - may show that Amex can do business with U.S. banks regardless of the card associations' existing rules.

Visa says it is reviewing the Bank of Hawaii deal to see if it violates any of those rules. American Express and the bank say it does not - since Amex, not the bank, will be issuing the cards.

The bank plans to continue issuing Visa-branded debit cards to its customers, but presumably Visa could revoke that privilege if it judged the deal a violation. Bank of Hawaii also acts as a merchant-acquirer for both Visa and MasterCard.

San Francisco-based Visa "will be looking at this transaction very carefully to make sure everything is done in compliance with our rules," said Joseph Carberry, a spokesman for the association. "It is premature to say definitely one way or the other that everything is OK or it isn't."

Lori L. McCarney, executive vice president and director of marketing at Bank of Hawaii, said her company, which is a subsidiary of Pacific Century Financial Corp., had dutifully checked Visa's bylaws before signing the deal and decided that it did not violate any rules. Bank of Hawaii's president and chief operating officer, Richard J. Dahl, was a member of the Visa U.S.A. board of directors from 1995 to 1998.

"There are no bylaws that prohibit us from doing what we are doing," Ms. McCarney said. "We are not issuing any credit cards. American Express is the issuer."

The deal itself is very small - the bank's credit card portfolio includes 148,000 consumer and business accounts and only $226 million in receivables - but it is significant for American Express, which has been seeking inroads into commercial banking.

As part of the deal, American Express will have an ongoing issuing and marketing relationship with Bank of Hawaii. Starting next year, the bank's customers will get new cards labeled "Bank of Hawaii American Express" to replace their Visa cards. The cards will have revolving lines of credit and will be marketed by both institutions, through direct mail and at the bank's 150 branches and 500 automated teller machines.

Ms. McCarney of Bank of Hawaii described the deal as an agent banking relationship, in which Bank of Hawaii will continue to be the dominant brand on the card. "We think of it as the Bank of Hawaii credit card brought to you by Amex," she said. "They will take over but will be doing it in BOH branding." The same will be true of card member statements and customer service.

Ms. McCarney said the bank expects to continue its good relationship with Visa and to market Visa check cards to its customers.

American Express, frustrated in its attempts to forge ties to U.S. banks, has spent the past several years focusing its efforts abroad. The result has been partnerships with several dozen banks around the world, which issue American Express cards to their customers. While Visa U.S.A. does not permit U.S. banks to do this, Visa International has no corresponding bylaw.

In August, Amex made some progress in cracking the U.S. bank card market when it bought a cobranded ShopRite MasterCard credit card portfolio from Valley National Bank, a subsidiary of Valley National Bancorp of Wayne, N.J. American Expressx plans to reissue these cards in early 2001 as ShopRite American Express cards. ShopRite is a regional grocery store chain based in New Jersey.

The deal with Bank of Hawaii represents American Express' second coup. Alfred F. Kelly Jr., group president of U.S. consumer and small business services for Amex, said in a statement: "We hope to establish similar deals with other U.S. banks in the future."

Susan Korchak, a spokeswoman for American Express, said her company has been very successful in increasing receivables through acquiring portfolios. She said Amex cardholders typically spend twice as much on their cards each year as Visa or MasterCard cardholders spend.

David Hochstim, an equity analyst with Bear, Stearns & Co. in New York, said American Express will have to make sure this strategy works before moving to make it an important part of its account acquisition practice.

"I think they will probably announce another one or two portfolio purchases and then look at the experience," he said. "They won't know until next year, when they see how customers accept getting a new card that is not a Visa."

T. Scott Clendaniel, principal of TSC Group in Owings Mills, Md., and a former card marketing manager at Bank of Hawaii, said he thinks the deal is good for both partners, provided that Amex can navigate the Hawaiian market, in which more than 70% of the population is of ethnic Asian or other minority background.

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