DOW JONES NEWSWIRES

MasterCard Inc. (MA) swung to a second-quarter loss from its lawsuit settlement with American Express Co. (AXP) as the company saw strong spending growth on its branded cards.

The second-largest card processor after Visa Inc. (V) reported a net loss of $ 746.7 million, or $5.74 a share, compared with year-ago net income of $252.3 million, or $1.85 a share. Excluding a $1.65 billion pretax charge on the settlement and other items, earnings rose to $2.11 a share from $1.43 a share.

Revenue rose 25% to $1.25 billion.

The mean estimates of analysts polled by Thomson Reuters were for per-share earnings of $2.02 a share on revenue of $1.21 billion.

MasterCard shares fell 3.6% to $261 in pre-market trading.

Worldwide gross dollar volume, or spending on MasterCard-branded cards, rose 13% in local-currency terms, with spending in the U.S. up 6.2%. Gains in South Asia/Middle East/Africa and Latin America were up 32% and 17%, respectively, in local currency terms. Processed transactions rose 13.6%.

In 2004, American Express sued Visa, MasterCard and eight of their member banks for imposing rules that had prohibited financial institutions from issuing credit cards through American Express. The lawsuit was filed shortly after the U.S. Supreme Court let stand a lower-court ruling that forced Visa and MasterCard to allow their member banks to issue credit cards on rival networks.

MasterCard reached the $1.8 billion settlement with American Express last month and will begin the first of 12 quarterly, $150 million payments in third quarter, contingent upon the performance of American Express' U.S. Global Network Services Business. Visa agreed to pay American Express $2.25 billion.

MasterCard, like Visa, doesn't issue cards. Rather, it makes money from processing and transaction fees it charges bank customers, thus limiting its exposure to the credit crunch. But now the weakening economy is expected to start hitting transactions as well. While card processors generally remain profitable, growth is expected to slow.

-By Shara Tibken, Dow Jones Newswires; 201-938-2168; shara.tibken@dowjones.com

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