American Express (AMX) is now a Bank

One trend we point to for 2009 is the wave of personal bankruptcies that shall awash Americans; we've written story after story after story about how people are now hiding out in their last option: credit cards - as all other places to stash debt have been shut off or used up. Ironically the credit card companies successfully lobbied to make personal bankruptcies much harder which led to a rash of filings a few (2?) years ago before the rules changed. Now, we will watch in great irony in 2009-2010 as the politicians who were bought and paid off bring up the credit card company executives and make a public spectacle of their unfair practices; practices the politicians were happy to approve in return for campaign contributions.

We've mentioned in the past the major credit card companies such as Capital One (COF) and Discover (DFS) as excellent short ideas - last night we received news that American Express (AXP) is being proactive from what is going to lie ahead and turning into a bank holding company. Why would they do such a thing? Oh - simply to get access to our tax money. What is supposed to be an "emergency" point of funding is now becoming the standard - that's dangerous thinking. Instead of using the bond market to fund themselves everyone now just waits for Atlas (Federal Reserve) to fund them - those are some mighty broad shoulders.

Can't wait to drive around town and check out the new "American Express Bank" outlets.... really how many banks do we need?

• American Express wants your deposits. (not really)
• The Federal Reserve on Monday granted AmEx's request to become a commercial bank, opening the door for the credit card giant to accept deposits and permanently access financing from the Fed. (yes the latter point is more like it) 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." AmEx filed its application with the Fed on Nov. 5.
• The Fed's approval for American Express was similar to the decision it made in September to transform the country's two biggest investment banks, Goldman Sachs Group Inc. and Morgan Stanley, into bank holding companies.
• In the case of AmEx, with more consumers having trouble paying their bills, it's seen the value of its primary assets decline. That's made it harder for the company to borrow to pay for daily operations.
• In exchange for Fed oversight, AmEx said it wants "greater access" to government-sponsored financial assistance programs.
• The company revealed severe financial troubles late last month, when it laid off about 7,000 people, or 10 percent of its global work force, and said it did not expect to meet its targets until the economic climate improved.
• "You can't let AmEx fail, is basically what the Fed is deciding." (eyeroll)
• "It's showing the trickle-down effect. This isn't for mortgages; this is for cards," Gillen said. "Credit cards were kind of the credit source of last resort. You could borrow against that as long as your credit wasn't reduced. People have gone from mortgages to home equity loans to credit cards." (bingo)
• In the next six months, AmEx will need $4 billion in net commercial paper and $7 billiion of long-term debt.
• A growing number of financial institutions are looking to buy banks and gather deposits. "There's a lot of competition for deposits now, and pricing for deposits is still high," said Blake Howells, director of equity research at Becker Capital Management in Portland, Oregon.

What a state of affairs.

[Sep 15 '07: Consumer Spending Continues, Where is the Money Coming From? Credit Cards]
[Dec 10, '07 - Consumers Increasingly Turning to Credit Cards]
[Dec 23, '07 - Unpaid Credit Cards Bedevil Americans]
[Jan 10: Credit Card Warnings Here, Credit Card Warnings There]
[Apr 4: Late Payments on Consumer Loans at 16 Year Highs]
[Jun 3: Credit Card Usage is Surging, Risking Another Debt Crisis]
[Jun 22: Americans Running Out of Places to Hide Debt - Now Credit Cards Go]
[Sep 23: Loan Delinquencies Continue their Path Upward]
[Oct 21: Credit Card Chargeoffs Rising Rapidly]

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