The Federal Reserve Board announced Monday its approval to a request from the credit card giant American Express (AXP) and a related company, American Express Travel Related Srvc, to become bank holding companies.
AMEX currently operates as an industrial loan company and is exempt from the definition of “bank”. However, in its statement the Fed noted that “in light of the unusual and exigent circumstances affecting the financial markets…the Board determined that emergency conditions exist that justify expeditious action on this proposal”.
Qualifying as a bank holding company will provide American Express with a more stable form of funding and give the co. access to low-cost financing from the Federal Reserve and government rescue programs.
Kenneth I. Chenault, Chairman and Chief Executive Officer, American Express Co. said:
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.
American Express is the third financial company to convert to a bank holding company. Goldman Sachs (GS) and Morgan Stanley (MS) made the move in September. It permitted both banks, which for many years had relied on debt markets for funding, to borrow money from the Central Bank and build a more stable base of deposits.
Last month, American Express reported a 24% drop in quarterly profit.
AMEX provides charge and credit payment-card products and travel-related services both in the U.S. and abroad. The co. has approx. $127 billion in total consolidated assets.