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AmEx to Customers: Take the Money and Run


$300 offered to close credit lines.

Ask a Manhattanite what a "lease buyout" is, and most will blithely respond that it's when a landlord pays a tenant to vacate his or her apartment. After all, why wouldn't that little old lady next door -- the one paying $800 a month for a rent-controlled loft on the Upper West Side -- want to take a hundred grand to go find some new digs?

This phenomenon, formerly reserved for big-city landlords in New York or San Francisco, appears to be migrating to the financial industry.

According to Reuters, American Express (AXP) is offering select clients $300 to close their credit-card accounts. The company didn't disclose how many such offers it planned to send out - but did say customers will have until the end of the month to accept, and until the end of March or April to pay off their balances. In exchange, they'll receive a $300 pre-paid American Express gift card.

Rivals Capital One (COF), Discover (DFS) and JPMorgan (JPM) haven't announced similar programs, but efforts to rein in consumer credit lines are ongoing throughout the industry. The once-steady stream of new card offers that used to fill our mailboxes has finally dried up.

Besieged by higher defaults and rising delinquencies, American Express is regretting its decision a few years ago to start offering cards to customers with sketchier credit records. Once known as card company of the well-to-do, the firm expanded its offerings down the credit spectrum at just the wrong time.

Surprised by a sharp downturn in economic conditions and the new allergy to structured credit card debt, American Express has seen its stock decimated in recent months: Shares are down more than 75% from their high last year. Capital One is off a more dramatic 86% since peaking at over $63 per share last year; Discover is off a mere 72% from its high.

The relative success of the new program could have 2 noteworthy effects. First, if successful, other card companies may rush to mimic AmEx's bold initiative.

Second, consumers' willingness to voluntarily close credit lines, precisely at a time when logic would dictate a desire to keep available as much rainy-day credit as possible, provides stark evidence of the ongoing rejection of debt, credit and excess.

As consumers return to more sustainable, responsible buying patterns -- first by necessity then by choice -- purveyors of the just-not-really-necessary aren't likely to fare well.

But as is the case in a broadly deflationary environment, even purveyors of the kind of things that you stockpile in case of apocalypse are facing hard times. Campbell's Soup (CPB), for example, reported weaker-than-expected earnings and offered less-than-inspiring guidance for 2009.

Consumers, it seems, are just buying less. Of everything. Maybe closing that credit card isn't such a bad idea after all.
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