American Express to Convert To Bank Holding Company
Tuesday, November 11, 2008
The Federal Reserve yesterday granted a request by American Express to become a bank holding company, opening the door for the credit card giant to accept deposits and permanently access financing from the Fed.
The approval represented the latest reshaping of the financial services industry, which is undergoing its worst credit crisis in decades. In announcing the action, the Fed cited "emergency conditions."
The Fed's approval for American Express and American Express Travel Related Services was similar to a decision it made in September to transform the country's two biggest investment banks, Goldman Sachs Group and Morgan Stanley, into bank holding companies.
That move bolstered the two institutions after the collapse of Lehman Brothers, the largest bankruptcy filing in U.S. history.
Like American Express, Goldman and Morgan Stanley gained the ability to borrow federal money and build a base of deposits in an effort to reassure investors and other banks.
In the case of American Express, with more consumers having trouble paying their bills, it has seen the value of its primary assets decline. That has made it harder for the company to borrow to pay for daily operations.
American Express last month reported its third-quarter profit fell 24 percent as cardholders restrained their spending and had more trouble paying off debt.
Last month, it also announced plans to cut 10 percent of its global workforce and painted a bleak economic picture, saying it did not expect to meet its financial targets until business conditions improved.
In its quarterly filing with the Securities and Exchange Commission on Oct. 31, the company said it expected write-offs in its credit card portfolio to continue to increase in the fourth quarter and into next year.
The New York company has reported four straight quarters of profit declines.