Quick Hits: AmEx Regroups, Restructures as Bank Holding Company
American Express (AXP) has pitched itself as the credit card for the snooty, but now plans to become just another commercial bank grubbing for deposits.
The reason: The company needs a long injection of cold cash as profits continue to fall.
Converting American Express and American Express Travel Related Services to bank holding companies will allow the credit card issuer to attract deposits and to tap financing from the Federal Reserve in the future.
In this respect, American Express follows Goldman Sachs (GS) and Morgan Stanley (MS) , which also recently became bank holding companies.
American Express filed its application with the Fed on November 5th, becoming the first credit card company to make the conversion. The action represents the continued reshaping of the financial-services industry, which has been slammed by the worst credit crunch in decades.
American Express says more of its customers are having trouble paying their bills on time, if at all. Profit declined 24% in the third quarter - the fourth quarter in a row of lower earnings. That's reduced the value of the company and made it harder to borrow money to cover daily operations.
In October, American Express laid off about 7,000 workers, or about 10% of its work force worldwide, and said it wouldn't meet analysts' earning estimates until the economy rebounded.
Write-offs in its credit card business are likely to increase in the fourth quarter and into next year.
In exchange for oversight by the Federal Reserve, American Express wants increased access to government-sponsored financial-assistance programs. That's a polite way of saying bailout, if the economy becomes moribund.
This raises a basic question: Why is American Express to big to fail?
There's no doubt that operating as a bank holding company will give American Express fresh cash and added flexibility.
But one wag asks, will its new deposit slips come in platinum, gold and black?
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Paulson: Hi Warren, how can I help you.
Buffet: Hank remember how you called me the night before your $700B bailout proposal and I came out the next day and supported the proposal.
Paulson: Yeah I remember that, it sure did keep the serfs from complaining.
Buffet: Now remember how I put my name and money behind Goldman Sachs a few weeks ago when their stock was tanking
Paulson: We rewarded you handsomely for that one Warren.
Buffet: It's true, but remember my recent NY Times Op-ed re how its a good time to buy US stocks
Paulson: Let's cut to the chase Warren, how can I help you.
Buffet: Well Hank, I have an American Express problem. Seems a lot of these serfs we gave these credit cards to went out and charged a bunch of stuff and the poor suckers have lost their jobs or maxed out their home equity lines and can't pay it back.
Paulson: Yeah, you should see the tears rolling down my face.
Buffet: Those are tears over my couple hindred millions of dollars invested in Amex quickly disappearing right.
Paulson: Of course, you don't think I give a sh*t about the serfs LOL
Buffet: LOL. What can you do to help me?
Paulson: That's simple, tell your pal, the CEO at Amex, to put in an application with the FDIC to become a bank holding company. Then we'll approve it with no public comment and you can have some of the $700B of our little bailout plan.
Buffet: Fantastic. If you need anything else you know where to find me.
Paulson: Right back at you buddy!
Do I need to start saying "Super-size me"?
That's worrisome since we are already way over banked. The competition is so excessive now that it will be very difficult for many small and midsize banks to survive given the lack of up coming business needs in the future. Pouring these huge institutional brokerage houses into the banking system will create havoc on the regional banks.
We could end up with ten huge banks and no small banks then it will be screw you consumer. Pay the man. What ever happened to anti trust laws? Ten huge banks to big to fail or would it be ten huge banks to big to know what they are really worth and are they still solvent?
The conglomerates are taking away all opportunity for Americans to have a chance of having a business of their own.
That's just my inflated 8 cents worth. Still worth the money even at 8 cents.
JPM
he busted up those railroad barons and instituted anti-trust and monopoly laws.
Today we play with monopoly money and re-write the laws at will.
Got to break those serfs to keep them honest .... and poor!
I have the feeling that before this is over, we will have the answer to that question.
