American Express heads for shelter

by Gill Montia

Story link: American Express heads for shelter

The US Federal Reserve has agreed that credit card provider, American Express Co, can convert to a bank holding company.

The move will allow the group to access funding from the US Treasury and subsidiary, American Express Travel Related Services Co. Inc. will also convert.

Similar requests for a change of status from Goldman Sachs and Morgan Stanley were granted in September.

This allowed the investment banks permanent access to emergency funding from the Fed and changed the ways in which the banks are regulated, allowing them to take retail deposits but at the same time upping their capital requirements.

In the case of American Express, the company saw its profit tumble 24% in the third quarter of 2008, as its customers spent less and struggled to pay off existing debts.

While the result was above analysts’ expectations, the group has a large customer base in the US and has therefore been forced to increase by 50% its provision for credit losses, in the face of rising unemployment and falling house prices.

In the past fortnight, American Express announced that it is cutting 10% of its workforce in a move aimed at making savings of $1.8 billion during 2009.

Around 7,000 jobs will go and spending on technology, marketing, business development and professional services will have to be reduced to meet the target.

The restructuring will create a charge of between $240 million and $290 million in the final quarter of 2008.