American Express Becomes Bank Holding Company

American Express has recently gone from a credit card company to a bank holding company as well. This will allow the company to access funds from the TARP, troubled asset relief program. American Express is seeking 3.5 billion dollars from the Federal Government in order to help relive the stress it has encountered during the current credit crises.

Typically American Express sells off its credit card debt in the form of bonds to institutional investors. These investors then would receive monthly income from monthly credit card payments. However, in recent times it has been much harder from American Express to sell those bonds to investors. Therefore, Amex is seeking relief from the Federal Reserve. So far, 52 institutions have sought help from feds.

Reduced consumer spending has affected the credit card industry as a whole. American Express has experienced declining profits in the last four quarters of this year. Bad credit card debt this year has increased 50% from last year to 1.35 billion dollars. Furthermore, Amex expects bad debt to continue during this financial crises.

It only makes sense for American Express to become a bank holding company. This gives them the ability to access funds from the 700 billion dollar bailout recently passed by congress. The diminished ability to sell credit card debt as bonds to investors could cause American Express to fail. This is now highly unlikely with its new line of credit that they have acquired from the government.

This plan is also good for the public as well. We need liquidity in our consumer credit markets to continue to fund consumer spending. Consumer spending directly affects the job market as well. If spending is down, then retailers and other sectors of the economy are affected. Less revenue means less jobs.

These are troubling times for the world economy. American Express is an institution that has been around since 1850. Once a courier company, American Express is now going to be a bank like Bank of America or Wells Fargo. Will American Express now enter the realm of banking? Only time will tell the answer.

The last 6 months has changed the banking industry completely. We have seen the failure of many well known banks like Wachovia and Washington Mutual. The mortgage crisis has changed banking forever. No longer will a lawless wild wild west exist. Federal regulations will now curtail risky lending practices and limit executive compensation. Perhaps, American Express will be able to take advantage of this changing banking arena.