Amex Gets Huge Government Handout

by Darren

American Express, a company known for lecturing it’s customers on financial responsibility, has taken a huge $3.39 billion from the government. The company, largely known for its’ credit card operations, received the huge capital injection as part of the US government’s bailout of the financial sector, also known as the Troubled Asset Relief Program Capital Purchase Program.

“American Express expects to issue and sell to the Treasury preferred stock of approximately 3.39 billion dollars and warrants to purchase shares of common stock for up to 15 percent of that amount,” the company said.

The deal represents very low cost capital to American Express. The preferred shares will pay a return of 5% for the first five years. Last month American Express was granted the right to become a commercial bank.

Standard & Poor’s cut American Express’ long-term debt rating last week and at least three equity analysts this month have recommended selling the shares as higher unemployment and a decline in consumer spending threaten earnings.

Card issuers, along with securities firms including Goldman Sachs Group Inc., insurers like Hartford Financial Services Group Inc. and commercial lender CIT Group Inc., sought status as bank holding companies to tap the government’s $700 billion financial industry rescue package. CIT said today its request for $2.33 billion won preliminary approval from the U.S.

American Express customers will be expected to continue to pay their bills while the company converts to bank status.