Here is the story from our friends as USA Today:
“Caught in the financial typhoon, American Express is seeking a safe harbor by becoming a bank holding company. The Federal Reserve approved AmEx’s request today, bypassing the normal 30-day waiting period to become a commercial bank.
The move gives the credit-card and travel-services company access to low-cost financing from the Fed. In return, it will face greater regulation, be limited in the risks it takes and be required to keep more capital in reserve.
Last week AmEx reported a 24% drop in quarterly profits, and last month it announced plans to cut 7,000 jobs, or nearly 10% of its workforce.”
American Express is in need of assistance because its users, primarily business and small businesses have increasingly defaulted or missed monthly payments. However, in a public statement, American Express, CEO Kenneth Chenault, stated the following:
“Given the continued volatility in the financial markets we want to be best-positioned to take advantage of the various programs the federal government has introduced or may introduce to support U.S. financial institutions.”
Given the rise in the number defaults in the housing market and its ripple effect on other credit markets, taxpayers and consumers should be somewhat leery of American Express when it states that it is moving to become a bank to simply “take advantage of various programs the federal government has introduced…”
As last week’s news about layoffs at American Express are combined with their move to garner taxpayer money, consumers and borrowers should be cautious of what American Express and other credit card lenders may do to remain solvent. Rate increases, fee assessments, and credit limit reductions are all in the works and more fees may be heading consumers’ way. Borrowers who utilize these cards may want to look to other forms of short-term credit to avoid the all but certain upcoming surprises from card issuers (i.e you pay more to utilize their plastic product).