Looking for sanctuary with the U.S. government, along with numerous other financial and industrial companies in recent weeks, American Express announced it is becoming a bank. A government release stated that, in light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the Federal Reserve Board has determined that emergency conditions exist that justify expeditious action on this proposal in accordance with the provisions of the BHC Act and the Board’s regulations.
American Express, with total consolidated assets of approximately $127 billion, provides charge and credit payment-card products and travel-related services and engages in other activities both in the United States and abroad. American Express operates a bank presently, but under different operating units that are entitled to certain government service afforded the bank holding company. The company currently operates American Express Centurion Bank, as well as a savings and loan, American Express Bank. AmEx Thrift has total consolidated assets of approximately $25 billion and controls deposits of approximately $7.2 billion. The AmEx Thrift engages primarily as a facilitator in credit card lending activities. These entities offer primarily credit cards, loans and certificates of deposit. The move will give AmEx the ability to grow its deposits and provide it greater access to Fed funding and government rescue programs.
AmEx was dependent asset backed securities to financed activities. The company bundled its credit card loans into securities and sold them to investors. The market for asset backed securities has dried up along with various other aspects of the credit market including commercial paper. Since the bank did not have significant bank deposits as a method to use those liabilities against the extension of credit or the banks assets, the credit market freeze was choking continued operations. AmEx said it can now issue short-term debt through the Fed’s Commercial Paper Funding Facility and has access to the Fed funding window, providing Amex a substitute resource for funding the credit operations.
In approving the bank status, the Federal Reserve added that In addition, the Board has consulted with the primary federal and state supervisors of Applicants, AmEx Bank, and AmEx Thrift. The Federal Reserve Board consistently has considered capital adequacy to be an especially important aspect in analyzing financial factors. AmEx and AmEx
Travel are adequately capitalized and all the AmEx entities that are subject to regulatory capital requirements currently exceed the relevant requirements. In addition, AmEx Bank and AmEx Thrift are currently well capitalized under applicable federal guidelines. AmEx Bank and AmEx Thrift also would be well capitalized on a pro forma basis on consummation of the proposal. Other financial factors are consistent with approval.
The consummation of the bank holding company proposal will create a stronger and more diversified financial services organization and would provide the current and future customers of AmEx, AmEx Travel, and AmEx Thrift with expanded financial products and services. AmEx was the third financial firm to request the bank holding company conversion from the Feds. Goldman Sachs and Morgan Stanley converted to bank holding companies earlier in order to maintain liquidity in their operations.
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