A senior executive at Wachovia Corp. on Friday became the first banker to testify in defense of Visa U.S.A., and said that the association's rule forbidding members from issuing American Express and Discover cards is good for banks.

Beverly Wells, executive vice president at Wachovia, said Visa's bylaw 2.10e, which the government is seeking to overturn, gives banks the security of knowing that all members of the association have the same business goals.

The bylaw is a central target of the Justice Department in its antitrust case against Visa and MasterCard International. MasterCard has a similar rule, known as the competitive programs policy, but it is less stringent than Visa's.

Visa's bylaw "gives us a level of assurance that the member banks won't be distracted" by certain types of competitive issues, said Ms. Wells, who heads retail financial services at Wachovia, of Winston-Salem, N.C. "If you look at the innovation Visa has been able to create with member banks," bylaw 2.10e "has helped consumers" by keeping banks focused.

Ms. Wells also testified that in summer 1998 Wachovia had extensive discussions with American Express Co. about teaming up to issue credit cards. Ms. Wells said these talks did not signal any dissatisfaction with Visa or its rules, and that Wachovia believes so strongly in the bylaws that it would have dropped out of Visa if it had decided to work with American Express.

Because American Express would not agree to two of Wachovia's stipulations, Ms. Wells said, no deal was made. Wachovia wanted to have some type of ownership in Amex - similar to the structure offered by the associations - that would allow it to have a say in American Express' decisions. The bank also wanted access to American Express' prized Membership Rewards program, which Amex has typically placed off-limits to partners.

Ms. Wells testified that if American Express had agreed to those two requests, Wachovia would have undergone a lengthy financial analysis to see if it made sense to give up issuing Visa and MasterCard in favor of American Express.

"We understood if we had moved forward, we would have had to leave Visa and MasterCard," Ms. Wells said. But, "We did not end our discussions with Amex because of bylaw 2.10e."

At the end of 1999, Wachovia signed a partnership agreement with Visa, committing to move 88% of its portfolio to Visa by the end of 2004. Wachovia's debit cards are already issued exclusively under the Visa brand.

In exchange for this commitment, Wachovia was given a seat on Visa's board, lower assessment fees, and additional marketing support.

Ms. Wells testified that Visa and MasterCard have become increasingly competitive over the years, and that, for a midsize bank like Wachovia, "it would be better to align ourselves with one" of the giants.

She said Wachovia reviewed offers from both associations, but ultimately decided Visa was a better fit. Indeed, MasterCard's flexibility - which recently has helped it win business from major banks like Citigroup - was a turnoff for Wachovia.

"Given the importance of the Visa brand to Wachovia, we felt the banks that were aligning with MasterCard didn't have the same loyalty to a brand," Ms. Wells said.

Wachovia was also seduced by Visa's offer of a board seat, which Ms. Wells said would give a bank of Wachovia's size "more influence."

Perhaps signaling one of the remedies she is considering in the case, Judge Barbara S. Jones asked Ms. Wells, "In a time period where many board members are moving to high levels of dedication, were 2.10e or CPP to go, what would your reaction be to an offer by Amex?"

Ms. Wells replied that even if 2.10e remained, if Wachovia were able to participate in a "financially attractive arrangement, we would go."

"We are looking to be part of an organization that has a single, cohesive" focus, Ms. Wells said. "If 2.10e didn't exist, it wouldn't change anything, except our loss of confidence in Visa, because over time it would become fragmented."

In cross-examination, the Justice Department's lead prosecutor, Melvin I. Schwarz, pointed to documents from the mid-1990s that discussed ways that Visa could better compete against American Express. One document expressed the need to compete " … against the real competition [Amex and Discover] versus MasterCard."

In response to this document, Ms. Wells said that Wachovia, "by having participation in MasterCard," does not compete with MasterCard, "but we very much compete with American Express and Discover."

Mr. Schwarz then referred to Ms. Wells' original deposition, in which she said "the real competition for banks is Amex and Discover, not MasterCard."

Ms. Wells said the idea that MasterCard should buy Discover and stop being an association "was discussed over the years," because "in my mind, Discover was not large enough to continue to have a role" in the card business.

Mr. Schwarz pointed to a document in which Ms. Wells wrote: "MasterCard and Visa are separate but not distinct. Banks need a nonassociation credit product."

Ms. Wells said she did not recall writing that document. She said she views MasterCard as a competitor to Visa, but not to Wachovia.

Ms. Wells said some competition between MasterCard and Visa in petty areas - such as mail share - actually hurts the banks.

Referring to a period when both associations offered financial incentives to member banks that sent out more direct mail for their respective brands, Ms. Wells said Wachovia saw that as a gross waste of the bank's money.

"My feeling was that it was an interesting use of their dollars that could have been put to better use," she said.

In a separate development on Thursday evening, Judge Jones refused a motion by Discover Financial Services to become a plaintiff in the antitrust trial. Donald G. Kempf, Jr., executive vice president and chief legal officer at Morgan Stanley Dean Witter & Co., Discover's parent company, asked the court to consider its motion to intervene based on its complaint that the government was only focusing on disbanding 2.10e, whereas Discover believes that the card associations have many additional rules that "thwart competition."

Discover's main complaint is that there is no network competition between Visa and MasterCard, and because of that, the two associations hold 80% of the market.

Mr. Kempf said it was unusual that Discover had filed its motion to intervene so late in the case, but that it did so because it thought the government was not paying enough attention to this issue.

Judge Jones said she would soon issue a statement giving her reasons for denying Discover's motion. She had not done so by late Friday afternoon.

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