Winehole23
12-24-2008, 01:20 AM
http://www.bloomberg.com/apps/news?pid=20601087&sid=aojH5YQChWLI&refer=home
Dec. 23 (Bloomberg) -- American Express Co (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS)., the credit- card company that’s converting into a bank, will get $3.39 billion of fresh capital from the U.S. rescue fund to ensure its survival as the recession heads into a second year.
American Express joins more than 190 regional banks, commercial lenders, insurers and card issuers seeking at least $75 billion from the second phase of the Treasury’s bailout plan for financial firms. Faced with rising defaults by cardholders, the New York-based firm won Federal Reserve approval to become a commercial bank last month and announced in a statement today it gained access to the $700 billion Troubled Asset Relief Program.
“The ability to avail themselves of government funding takes the dire scenarios off the table,” said Richard Shane (http://search.bloomberg.com/search?q=Richard+Shane&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), an analyst at Jefferies & Co. in San Francisco. Shane, who initiated the shares with an “underperform” rating in November, said today he expects “significant losses” in the loan portfolio.
The Treasury’s Troubled Asset Relief Program will buy preferred shares that pay annual dividends (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) of 5 percent for the first five years and 9 percent in following years, American Express said. The company will also sell warrants that entitle the Treasury to buy common stock of up to 15 percent of the preferred purchase.
American Express rival Capital One Financial Corp. has preliminary approval for $3.6 billion from the U.S. and Discover Financial Services asked for $1.2 billion. Discover, based in Riverwoods, Illinois, was awarded bank holding company status last week.
Card Companies
Card issuers, along with securities firms including Goldman Sachs Group Inc., insurers like Hartford Financial Services Group Inc. and commercial lender CIT Group Inc., sought status as bank holding companies to tap the government’s rescue fund. CIT said today its request for $2.33 billion won preliminary approval.
Standard & Poor’s cut American Express’ long-term debt rating (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) last week and at least three equity analysts this month have recommended selling the shares as higher unemployment and a decline in consumer spending threaten earnings.
American Express fell 46 cents to $17.96 at 4:15 p.m. in composite trading on the New York Stock Exchange. The shares (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) have lost about two-thirds of their value this year.
American Express Chief Financial Officer Daniel Henry (http://search.bloomberg.com/search?q=Daniel+Henry&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said in October that that company had $24 billion of debt maturing over the next 12 months. While the lender would probably have been able to pay that off, gaining access to TARP removes any concern, said Shane from Jefferies.
Longer-term, the increased regulatory oversight that banks face and the higher capital levels they have to maintain may require American Express to scale back its lending, reducing profit, Shane said.
“It means potentially lower leverage going forward and potentially diminished returns,” he said.
Dec. 23 (Bloomberg) -- American Express Co (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS)., the credit- card company that’s converting into a bank, will get $3.39 billion of fresh capital from the U.S. rescue fund to ensure its survival as the recession heads into a second year.
American Express joins more than 190 regional banks, commercial lenders, insurers and card issuers seeking at least $75 billion from the second phase of the Treasury’s bailout plan for financial firms. Faced with rising defaults by cardholders, the New York-based firm won Federal Reserve approval to become a commercial bank last month and announced in a statement today it gained access to the $700 billion Troubled Asset Relief Program.
“The ability to avail themselves of government funding takes the dire scenarios off the table,” said Richard Shane (http://search.bloomberg.com/search?q=Richard+Shane&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), an analyst at Jefferies & Co. in San Francisco. Shane, who initiated the shares with an “underperform” rating in November, said today he expects “significant losses” in the loan portfolio.
The Treasury’s Troubled Asset Relief Program will buy preferred shares that pay annual dividends (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) of 5 percent for the first five years and 9 percent in following years, American Express said. The company will also sell warrants that entitle the Treasury to buy common stock of up to 15 percent of the preferred purchase.
American Express rival Capital One Financial Corp. has preliminary approval for $3.6 billion from the U.S. and Discover Financial Services asked for $1.2 billion. Discover, based in Riverwoods, Illinois, was awarded bank holding company status last week.
Card Companies
Card issuers, along with securities firms including Goldman Sachs Group Inc., insurers like Hartford Financial Services Group Inc. and commercial lender CIT Group Inc., sought status as bank holding companies to tap the government’s rescue fund. CIT said today its request for $2.33 billion won preliminary approval.
Standard & Poor’s cut American Express’ long-term debt rating (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) last week and at least three equity analysts this month have recommended selling the shares as higher unemployment and a decline in consumer spending threaten earnings.
American Express fell 46 cents to $17.96 at 4:15 p.m. in composite trading on the New York Stock Exchange. The shares (http://www.bloomberg.com/apps/quote?ticker=AXP%3AUS) have lost about two-thirds of their value this year.
American Express Chief Financial Officer Daniel Henry (http://search.bloomberg.com/search?q=Daniel+Henry&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said in October that that company had $24 billion of debt maturing over the next 12 months. While the lender would probably have been able to pay that off, gaining access to TARP removes any concern, said Shane from Jefferies.
Longer-term, the increased regulatory oversight that banks face and the higher capital levels they have to maintain may require American Express to scale back its lending, reducing profit, Shane said.
“It means potentially lower leverage going forward and potentially diminished returns,” he said.