JANUARY 2005

Citigroup to Issue American Express Cards

On the heels of a key Supreme Court ruling, a second major Visa and Mastercard member has agreed to issue American Express cards. Last fall the U.S. Supreme Court affirmed a lower court ruling that prevented Visa and MasterCard from prohibiting their members from issuing cards from competing networks such as Discover and American Express. Even before the ruling, MBNA and American Express announced that they would partner to issue a card product to be processed over the American Express network. In mid-December Citigroup became the second major card issuer to partner with American Express. Citi announced that it will begin issuing American Express cards in late 2005. According to the American Banker, Citi will develop the product features and manage customer relationships. American Express will process card transactions through its network.

Kenneth I. Chenault, chairman and CEO of American Express said in a press release, "As one of the world's most prestigious financial institutions, Citibank is a tremendous addition to the American Express network. We are committed to working with outstanding partners like Citibank and the premier customer experience they provide." Wall Street analysts seemed to like the idea. Fulcrum Global Partners LLC, raised its rating on American Express Co. to "buy". The American Banker also reported that Laura Caster, an analyst with Sandler O'Neill and Partners LP, wrote "We believe that the relationship should strengthen receivables growth at Citibank, provide increased fee income to American Express, and act as a catalyst for expansion of American Express' merchant coverage." Neither Mastercard nor Visa expressed concern over the partnership. Mastercard issued a statement saying that "this kind of experimentation is to be expected. The real test will be how much traction these programs will get over the long term."