American Express (NYSE: AXP) applied to the Fed to become a commercial bank. The Fed even waived the 30-day waiting fee "in light of the unusual and exigent circumstances affecting the financial markets."
But, American Express made almost $800 million last quarter, so why convert the company to a new form of financial entity? In part, according to Bloomberg, because "October marked the first month since 1993 that card companies were unable to sell bonds backed by customer payments."
Since Amex tends to offer cards to the high end of the consumer market, the move speaks loudly to how fast the credit crisis have moved up the ladder of individual income. Even those "well-off" are considered substantial default risks.
It would seem that all of those reasons are academic for a firm which is, by almost any measure, still remarkably healthy. Perhaps the hidden message here is that Amex management is looking out a quarter or two and sees its own financial disaster not unlike the ones that have hit banks and brokerages. If that is the case, it may be a window onto the depth of the credit crisis early next year, and the view is not terribly good from here.
Douglas A. McIntyre is an editor at 247wallst.com.
Closing Bell: Can't go up every day (BAC, HE, HPW, COMS, BRCD, WMT, AMD)
Wal-Mart grows profit and cash flow in Q3, but comps still ailing
Chasing Value: Ten stocks for 2010 -- Part 2
Reader Comments (Page 1 of 1)
11-11-2008 @ 5:48AM
Victor said...
This is the problem with the whole system. it is not enough to make a profit. Companies have to wrap their products in securities and buy and sell them like stocks. what happened to buying a stock to own part of a comapny and collecting dividends when they make money. We have turned stock ownership into a big gambling hall and it becomes a big crisis when these idiots can't resell what they bought for a profit. Now our tax dollars have to bail out these gamblers? You don't buy mortgage backed securities at inflated housing prices and expect to resell them for more money. We need to let these companies fail and stop this trading of bogus assets. AMEX is selling bonds backed by payments due? This is insane!!
11-11-2008 @ 6:23AM
Dan Barnett said...
While not insane, selling the bonds is a good way to maintain cash flow, I agree with Mr. McIntyre that it certainly is scary.
11-11-2008 @ 6:18AM
Robert J Zorzi Jr said...
Unfreaking believable! I want to be declared a bank holding company. I am a small business that has paid the over the top fees to AMEX for years. They unmercilessly stole from us every swipe nearly triple what Visa & MasterCard took. Now, we are bailing them out? What about the small businesses tlike mine that employee 80% of America? We are not being helped at all! The banks are cutting our lines of credit in the middle of this crisis and the feds are bailing them out! What an example of good olde bois! Hank Paulson you big turd former CEO of Goldman Sucks you are the biggest thief in the history of America! America RIse UP! WE NEED TO ALL STOP USING OUR CREDIT CARDS! Stop Paying them. THEY ARE SCREWING US ROYALY!! I am outraged every morning every day watching them give our money away!
11-11-2008 @ 6:24AM
Calvin said...
You want to punish credit cards companies, then pay it off each month in full. NO INTEREST DUE!!!
11-11-2008 @ 7:37AM
duncan said...
dear uncle sam. i am a bank. please send me large sums of money. my wife and my dog sam are the collateral.
if i need more, send it, and i will put my lawn mower up for collateral. will not need it until spring and need to replace this 12 year old toro anyway
11-11-2008 @ 8:19AM
beachpaul said...
The beauty of the gold card was that it always made you think twice before you swiped. The bill was due in full at the end of the month. During the run up to insanity, they allowed the green card to carry balances forward. I didn't renew my gold card. That change told me something wasn't right.
11-11-2008 @ 8:17AM
BHarrison said...
. . . and could it be that this change might put them in line for a portion of the BAILOUT money for FIs and banks, putting them in a better position for the anticipated crisis in the credit card industry? Isn't this part of what they label "gaming the Bailout system"?