http://www.nextwave.org/banking/did-american-express-become-a-bank-just-for-bailout-money/ Did American Express Become a Bank Just for Bailout Money?<http://www.nextwave.org/banking/did-american-express-become-a-bank-just-for-bailout-money/>November 19th, 2008 | by admin | American Express made their announcement to the world that they are becoming a bank. With credit failure and consumers spending crashing, American Express decided to dive into the world of banking in order to stabalize themselves financially using government bailout. The Federal reserve approved the company's request which will now lead American Express into a more secure future with access to funding and the big rescue bill. Since the global credit crunch, AmEx is now the third financial company to become a bank. Currently, American Express operates two types of banks, a small bank known as American Express Centurion Bank and a savings and loan American Express Bank. They deal primarily with credit cards, loans, and deposits. This is an important step for American Express considering the large amount of assets both banks hold together which totals over $50 billion. On top of that they hold over $14 billion in deposits. Had American Express not converted to a bank, their losses would have been devastating and would have eventually lead to failure of the company. Chief Executive Kenneth Chenault announced plans to continue expanding deposits in order to take full advantage of help systems and finances that will help with daily operations. As the economy declines, more and more people are having trouble paying their bills causing AmEx to lose valuable assets for their company which lead to trouble affording everday expenses. By becoming a commercial bank, AmEx will be able to improve their flexibility and resources. With help from the Feds, American Express is hoping to become a more stabalized institution. Since the announcement was made that AmEx was going to be a commercial bank, they have been limited by the Feds as far as their executive spending. Purchases made will be closely calculated to avoid further financial debt. Due to financial downfall, 7,000 employees were laid off. Since this still isn't enough of a cut in saving money, American Express announced that they will start cutting out the middle man by paying less for rewards programs. This means that the rewards, such as cash back incentives, that customers value so much, will be fewer and far between. The decision for AmEx to become a financial institution couldn't have come at a better time. As profits decline each quater, value is quickly decreasing over time. AmEx stocks fell last week from $1.45 to $22.52. Financial analysists never realized how deep the financial strife had gone until now despite assurances that AmEx is well caplitalized. The Feds decided that American Express could not fail as such a loss would have been a critical impact to the economy and millions of customers. These are scary times in the world of finances when you see well known stand-alone banks on Wall Street declaring bankruptcy for themselves. In order for the economy to right itself once more, President-elect Barack Obama will have to revise a new plan to get the ball going. Until we have the ability to stand on our own two feet once more, more and more companies such as American Express will see future hardships as the credit crunch increases. Less money in circulation means many credit card companies might see the end of their days sooner rather than later. Related Blogs
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