If you didn't hear the latest news on the bailout fiasco, American Express recently got the green light to become a bank holding company. Of course, this move gives one of the largest credit card companies a juicy opportunity to lobby for government funding. Well, guess what?
AmEx received approval earlier this week from the Federal Reserve to become a bank holding company, which is a similar structure to traditional commercial banks. The credit card company now has access to financing from the Fed and the ability to grow a large deposit base.
The company is said to be asking the government for an investment, according to a report in The Wall Street Journal citing unnamed sources. A spokeswoman for AmEx declined to comment, and telephone calls to the Treasury Department, which is running the $700 billion financial bailout program, did not immediately return telephone calls.
The increased funding opportunities through government programs, including the potential $3.5 billion investment, could be a huge boost to American Express as one of its primary sources of funding has nearly disappeared amid the ongoing credit crisis.
American Express relied on packaging pools of credit card debt and selling them to investors in the securitization market. As investors have shied away from purchasing all but the safest forms of debt, the market for credit card-backed securities has dwindled.
American Express is also facing a slowdown in the broader economy, which has led to more customers missing payments and cutting back on spending, hurting the company's profitability.
I can see a congo line way off in the distance of well-dressed executives making their way to Washington, D.C.
1 comment:
That may make me angrier than anything else. If we can forget about the idiocy of bailing out banks for a minute, it seems apparent that credit card companies don't deserve a damn thing.
That's an industry that thrives on horrible lending standards. Let 'em fold.
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