I’m just going to add this here as well so I can have it all in one place! Thank goodness I’m in good with American Express! :Cry:
An analyst reiterated his “Underperform” rating on America Express Co. Tuesday morning, a day after the credit card lender received regulatory approval to change its structure to a bank holding company.
On Monday, American Express received approval from the Federal Reserve to become a bank holding company, a structure similar to most commercial banks. The change allows American Express to create a large deposit base and have permanent access to financing from the Fed.
The change also allows the credit card company to take part in recent programs initiated by the government to help reduce the current turmoil in the global credit markets, including the Treasury Department’s program to directly invest in banks.
Friedman, Billings, Ramsey & Co. analyst Scott Valentin maintained his “Underperform” rating and $22 price target on the stock, noting that the change in status is a “modest positive,” but unlikely to significantly bolster the struggling company.
In a research note, Valentin said American Express’ earnings power and business model “are under severe stress in the current environment” and that is unlikely to change greatly with the shift in the company’s structure.
Last month, American Express said its third-quarter profit fell 24 percent as cardholders reduced their spending and more customers fell behind in paying off their balances.
Valentin said American Express will now have an easier time rolling over maturing debt in the coming quarters as it will have access to cheaper funding through federal programs.
Much of American Express’ funding comes from packaging credit card receivables and selling them as securities to investors. The market for those securities has all but dried up in recent months amid the ongoing credit crisis as investors have shied away from purchasing all but the safest forms of debt.
American Express is still likely to heavily rely on the securitization market for funding in the future as the company lacks a branch presence to help rapidly increase its deposit base, Valentin said. If American Express wants to grow its deposit base, which would be a more stable form of funding, it is likely to have to remain reliant upon high-cost certificates of deposits and possibly money market accounts, Valentin added.
American Express is the latest company to switch structures, joining investment banks Goldman Sachs Group Inc. and Morgan Stanley in becoming bank holding companies. Goldman and Morgan Stanley received approval in late September amid worries that stand-alone investment banks were no longer viable after Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. was sold to Bank of America Corp.