To Philip Heasley, president and chief operating officer of U.S. Bancorp, prohibiting member banks from issuing American Express or Discover cards makes perfect competitive sense.

So much so, that in a surprise bit of testimony in the antitrust trial on Tuesday, he argued for extending the same treatment to Visa rival MasterCard.

Mr. Heasley, who is chairman of Visa U.S.A.'s board and a member of Visa International's board, was the second-high-level banker to be called by the defense in the trial. During the Justice Department's cross-examination, he was asked about Visa bylaw 2.10e, a provision barring Visa issuers from also issuing American Express or Discover cards that Justice wants overturned.

In an answer that ran contrary to perhaps both sides' cases, Mr. Heasley responded, "It would be pro-competitive and good for Visa members if MasterCard was also exempt in 2.10e."

In separate testimony, Visa International chief executive officer, Malcolm Williamson said that responsibility for policy decisions largely lay with Visa's regional boards. With specific respect to bylaw 2.10e, for example, the rule has only been adopted inside the United States.

Under friendly questioning from Visa attorney Brent Rushforth, Mr. Williamson said one case in which Visa International imposed a rule on all its regional boards was after ex-Citibank chairman John Reed stepped down from Visa U.S.A.'s board. At that time Visa International asked all of its board members from Citigroup in different regions to resign.

Overseas, Citi wanted to continue to issue cards in the Visa brand, but "we expected that if we lost the U.S. business to MasterCard, we felt we would lose their business too," Mr. Williamson said. "We didn't want them to have representation without issuing many cards."

Visa International is considering again allowing Citibank executives seats on its regional boards overseas because, "now we realize Citi still issues many Visa cards overseas," he said.

Though part of the Justice Department's case aims to abolish bylaw 2.10e, U.S. attorneys have based much of the case on trying to prove that the card associations' governance - with the same banks represented on both boards - undermines competition between the two and leaves others at an unfair disadvantage.

In Mr. Heasley, Visa called a witness who has been running a business much the way that the Justice Department wants to be common practice. Justice is seeking a remedy that would force banks to predominately issue one bankcard brand, and only govern that brand, a practice U.S. Bancorp swore allegiance to more than 10 years ago.

Mr. Heasley testified that in 1988, U.S. Bancorp elected to give up both its MasterCard business and a gold card program it had with American Express, and to wholly commit itself to Visa, at no one's request.

"I didn't believe there was any long-term value to issue cards under two brands," Mr. Heasley said. "I believe strongly in one bank, one brand."

When asked during cross-examination by lead prosecutor Melvin Schwarz if duality has caused slower innovation, Mr. Heasley responded, "Yes. Too much time is spent on horizontal efforts."

Both Visa and MasterCard have argued that they have taken steps in the direction the Justice Department wants them to go, such as offering banks incentives to dedicate the majority of their card portfolio to one association. They claim these programs "level the playing field" by offering all member banks the same chance to earn financial incentives and other perks from the card associations, but testimony has uncovered many cases where larger banks have received more benefits.

Mr. Heasley said the partnership agreements are generally the same for each bank, but that he is "aware Visa gave some members more incentives" to win their business.

Though Mr. Heasley said he wants to add MasterCard to Visa's bylaw 2.10e, he was adamant that the rule should be left in place. He said it is impossible to compare Visa and MasterCard - which are cooperative organizations - to American Express and Morgan Stanley Dean Witter's Discover unit - which are public corporations.

"Bylaw 2.10e is a definition of how we play fair," Mr. Heasley said. "If 2.10e went away, you'd be giving a member an unfair advantage to participate both in a common pasture and also in a closed system."

Like others who have testified for Visa, Mr. Heasley said he believes that if allowed, Amex would "attempt to strangle off those high pieces of Visa's business" and leave the small banks alone.

U.S. Bancorp itself, because of Visa's structure, has been in the position where much of its proprietary innovation ended up benefiting the rest of Visa's members. Mr. Heasley said he did not like it, but even so, believes in the association format.

In 1988, U.S. Bancorp was the first bank to enter the corporate card business. At the time, Visa "was bemused" with the idea, Mr. Heasley said, because it still believed that the only money to be made in the card business came from interest revenue, and corporate cards were typically paid off in full each month.

Even though Visa did not offer U.S. Bancorp any financial assistance in developing its corporate card program, Mr. Heasley said the bank chose to issue the cards on Visa's network anyway because its branding proposition, "everywhere you want to be," suited U.S. Bank's strategy of issuing corporate cards in rural areas, still untouched by American Express.

However, once Visa saw how successful U.S. Bancorp's program was, it began to develop its own program, and offered it to all of its members, Mr. Heasley said.

"I put Visa into the corporate card market," he said. "I wasn't in a rush for every other bank to follow me."

He said that once U.S. Bancorp became a strong force in the corporate card market - it is today the largest bank issuer of corporate cards - American Express made countless overtures to work with the company. But Mr. Heasley chose to remain with Visa.

"As a member of Visa, it's very important for them to continue to invest," Mr. Heasley said. "It's creating an opportunity for everyone to get into corporate cards."

Late in the trial Tuesday, Visa International attorney John D. Gordon moved to submit new documents that would "show the institutional purpose of American Express in approaching the Justice Department."

It is not known what is written in the documents. Judge Barbara S. Jones asked Mr. Gordon to specify what testimony the documents were meant to bolster, and deferred a decision on admission.


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