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In Ten Years: American Express


Credit makes a comeback.

10 Companies in 10 Years Luckily, some people never learn.

The credit crunch of 2008 and the following economic downturn created crushing problems for American Express (AXP) and its snooty credit-card business. Sales of the company's super-fab black card collapsed between 2008 and 2010, because few could afford to pay a one-time $5,000 initiation fee and $2,500 annual fee while also charging at least $250,000 on the card each year. Worse, many of those who could spend foolishly decided to mask their wealth by using a proletarian Visa (V) or MasterCard (MA).

What's the world coming to, if image isn't everything?

After the market's belly flop, AmEx became a bank holding company, allowing it to attract deposits and, if necessary, tap emergency financing from the Federal Reserve. AmEx was the first credit card company to make the conversion.

Still, all the company's high-priced marketing and advertising gurus couldn't crack the basic problem: people wouldn't spend beyond the basics. Such frugality was un-American.

Extensive market research revealed that people hammered by economic downturns tend not to have any extra money. Those who did held onto it. Consumer spending crashed, and top management at AmEx contemplated a grim future of passing out toasters at suburban bank branches.

The Big Wigs convened a confab in an effort to save American Express. At the (cash only) bar, a few sought a brave new solution to the company's problems.

Doom seemed in keeping with the times, so American Express launched a new advertising campaign: "The end is nigh! Go into debt!"

The public's response was… nothing. The company fired that incompetent bunch of Madison Avenue hacks and tried again:

"A credit card is forever your loyal friend" flopped, as did "Every kiss begins with an American Express Gold Card."

"World Famous in Omaha!" showed initial promise, but didn't travel well outside the Midwest for reasons yet to be fully understood.

Then the worm turned. Amid a string of failed advertising campaigns, massive governmental intervention in the market and trillions of dollars in bailouts, the economy began to rebound. Oddly, the first sectors to recover were those unblessed with Uncle Sam's generous gifts of other peoples' money.

Before long, companies began to hire new workers. It was no longer possible to set up a lawn chair in the middle of a bus or commuter train at rush hour and take a long siesta. The weeds that had sprouted in the middle of Wall Street disappeared as legions of analysts, traders and hedge-fund honchos again found work.

It was morning in America: Fast-food restaurant chains plumped the bottom line with new calorie-choked meals, ugly cars sold well, and new shopping malls devoured empty lots across the fruited plain.

Consumers cracked open their stashes of cash and the nation's savings rate again turned negative - great news for an economy based on consumer spending. Credit was again available, and people used it to buy buckets of things they didn't need and would hardly use.

Cash registers rang out confidence. Few remembered 2008's sour economy, and fewer wanted to. Credit-card companies jacked up fees and piled on late charges. No one except the usual pain-in-the-butt consumer groups cared.

People in tract homes again aspired to carry the American Express card. Profits were up. Lawyers unwound the company's status as a bank holding company and used eBay to sell all those toasters stockpiled in anticipation of wooing those small depositors at small branch banks.

Before anyone could say Troubled Asset Relief Program, American Express got back to issuing zillions of green, gold, platinum, black, and who-knows-what-colored credit cards, pumped up the snob appeal - and all was right with the world.
No positions in stocks mentioned.
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