While not quite a dress rehearsal for next month's antitrust trial against Visa and MasterCard, a Senate hearing scheduled for today could open a window on whether the card associations' rivals, American Express Co. and Morgan Stanley Dean Witter & Co., have succeeded in steering the process.
The hearing, called by Sen. Bob Bennett, R-Utah, for the purpose of addressing "alleged antitrust violations by Visa and MasterCard," will have no effect on the outcome of the trial. But it will give Philip Purcell, chairman and chief executive officer of Morgan Stanley, and Harvey Golub, chairman and chief executive officer of American Express, an opportunity to vent publicly their beliefs that Visa and MasterCard are violating U.S. antitrust laws.
For Visa and MasterCard, the hearing also is a stark reminder of just how much political weight their foes wield.
Visa and MasterCard have maintained for several years that Morgan Stanley, and, in particular, American Express have lobbied government officials and ultimately succeeded in convincing the Justice Department to sue them. At issue are Visa's and MasterCard's operating rules, which prevent member banks from issuing the cards of competitors such as Morgan Stanley, which issues the Discover card, and American Express. The government says these rules are anti-competitive, and it is also attacking the governance structure of the associations, who are owned by the same banks.
The hearings will not "likely have a serious impact on the trial, but it does show what we all know, that the positions asserted by the Department of Justice are very much in line with what Amex and Morgan Stanley want," said Donald I. Baker, a former assistant attorney general for antitrust who has done some work for Visa. Mr. Baker now runs the Washington law firm, Baker & Miller.
Industry lobbyists said it is common knowledge in Washington that American Express and Morgan Stanley approached Sen. Phil Gramm, R-Tex., about holding hearings on stifled competition in the credit card industry. Morgan Stanley and American Express blame the bank card associations' operating rules.
When asked specifically whether American Express lobbied either Sen. Bennett or Sen. Gramm to hold hearings, spokesman Michael O'Neill said, "There have been conversations going on between Amex and legislators for a very long time."
Morgan Stanley has been a top contributor to Sen. Gramm's election campaigns. Over the past five years, the New York-based firm has contributed $52,150 to Sen. Gramm's campaigns, making it the senator's second largest donor, according to the Center for Responsive Politics, a Washington, D.C.-based non-profit organization. Mr. Golub was a contributor to Sen. Gramm's presidential campaign.
A spokeswoman for Sen. Gramm said the senator, who is the chairman of the Senate Banking Committee, speaks regularly with Mr. Golub and could very well have discussed the hearings. Sen. Gramm, however, prevailed on a reluctant Sen. Bennett to actually sponsor the hearings, sources say.
American Express and Morgan Stanley are big employers in Sen. Bennett's home state, said Mary Jane Collipriest, Sen. Bennett's spokeswoman for the Senate Banking subcommittee on financial services, on which he serves as chairman. American Express said it employs more than 2,000 in Utah, and Morgan Stanley would not provide specific employee numbers.
"Bennett is presumably being cordial to important folks in the state," said an executive close to the bank card industry side.
Visa would not comment for this story.
MasterCard said in a statement that, "we are delighted to present our arguments which will demonstrate to the committee how intensely competitive the payments industry is."
Paul Allen and Noah Hanft, general counsels of Visa and MasterCard respectively, will defend the credit card associations at the hearing. The airing of these issues, just 14 days before Visa and MasterCard go to court to defend themselves in the Department of Justice's case on the same issue, has officials from Visa and MasterCard up in arms, sources close to the companies report.
The hearing was organized recently and it was meant to precede the trial, Ms. Collipriest said.
"Once the trial begins, it would be much more difficult to review the topic," Ms. Collipriest said. "We have an obligation to review banking services."
It is unclear what will result from the hearings, but one prominent antitrust attorney said American Express and Morgan Stanley should not hope they could influence the judge presiding over the trial next month. Judge Barbara Jones "will not take kindly that things are politically motivated," said the attorney, who did not want to be identified.