American Express Now a Commercial Bank
By Mike Caggeso
Associate Editor
Money Morning
American Express Co. (AXP) today (Tuesday) won approval from the U.S. Federal Reserve to become a commercial bank, giving the credit card titan a crucial lifeline as the risk of defaults runs higher in the slowing global market.
American Express won the Fed’s approval unanimously and without the application’s standard 30-day waiting period because of “the unusual and exigent circumstances affecting the financial markets,” according to a Fed statement.
High unemployment and a severe drought of credit are plaguing the consumer market, causing them to spend less. Worse, it’s caused many to be unable to pay existing debts such as credit cards.
October was the first month in 15 years that credit card companies weren’t able to sell bonds backed by customer payments, Bloomberg reported. And this upgrade to commercial bank status allows American Express – the fourth-largest U.S. credit card company – access to government funds.
|
American Express becomes the third major institution to switch over to a commercial bank in as many months, joining Goldman Sachs Group, Inc. (GS) and Morgan Stanley (MS).
In the past year, American Express has lost nearly half its market value as it posted four consecutive quarters of declining profit.
Mixed Analyst Reactions
Oppenheimer Holdings, Inc. (OPY) analyst Meredith Whitney said that the approval will give American Express a more stable mix of funding and allow it to cut borrowing costs.
“Whether institutions like it or not, the only prudent thing to do is assume a protracted worst-case funding scenario," Whitney said in a note to investors, Reuters reported.
While she maintained her “perform” rating on American Express’ stock, she said that “concerns for American Express and other consumer lending-related stocks continue to be worse-than-expected credit losses.”
Scott Valentin of Friedman, Billings, Ramsey Group, Inc. (FBR) wasn’t as generous, the Associated Press reported. While maintaining his “underperform” rating and $22 target price for American Express stock, Valentin said the company’s earnings and model “are under severe stress in the current environment.”
News and Related Story Links:
- Associated Press:
Ahead of the Bell: American Express
Peter Schiff: Why this Money Should Replace the U.S. Dollar
There’s a new universal currency, backed by solid gold. You can use it to make online purchases anywhere in the world. Converting some money to the new currency takes just 5 minutes. You can start with as little as $10… or as much as $10 million.According to CNBC star analyst and Euro Pacific Capital President Peter Schiff, this money could double the value of your savings – automatically – in just 6-9 months.
For Schiff’s full analysis and recommendations, please go here.
Pingback by Offshore Services » Blog Archive » American Express Now a Commercial Bank on 12 November 2008:
[...] Here is the original: American Express Now a Commercial Bank [...]
Pingback by Jutia Group - Market Jitters & Political Critters on 12 November 2008:
[...] Mike Caggeso Money Morning addthis_pub = ‘jutiagroup’; addthis_logo = ‘http://www.jutiagroup.com/favicon.ico’; addthis_brand [...]
Pingback by U.S. Automakers, Freddie Mac and Foreign Exporters Next in Line for Bailout Handouts on 17 November 2008:
[...] Express Co. (AXP) applied for (and received) approval to become a commercial bank in order to tap into the government resources. While certain tweaks should have been expected [...]
Pingback by Can I obtain a corporate credit card if I have bad credit? on 30 November 2008:
[...] American Express Now a Commercial Bank [...]
Pingback by Corporate Credit Card? on 23 December 2008:
[...] American Express Now a Commercial Bank [...]
Pingback by Does anyone know what a waiver of liability is when filed with a corporate Credit Card company? on 31 December 2008:
[...] American Express Now a Commercial Bank [...]