AmEx to become a commercial bank, get access to federal funds

11 November 2008

American Express, the largest US credit-card company by purchases, and the fourth largest US credit card issuer, said it has received approval from the US Federal Reserve to function as a commercial bank, a development that will cut its borrowing cost and give it access to the Treasury's $700 billion 'Troubled Assets Relief Program', as it had piled mountains of credit card defaults and found trouble sourcing for cheap funds.

The sudden move has surprised many as AmEx had always maintained that it would not convert itself into a bank although it had kept the option open.

The Federal Reserve acted with speed and used its emergency powers to grant AmEx the licence within 20 days, a process which usually takes up to 45 days, as it realised the company's urgency to avail of the government investment programme which was due to expire on 14 November.

In a statement, the Fed said the licence was granted quickly because of the ''emergency conditions'' and ''the unusual and exigent circumstances'' in the financial industry.

Another reason for the Fed to hasten the approval in spite of AmEx's retail banking experience being very low, was that AmEx had $127 billion in total assets and only $7.2 billion in retail deposits, a sign that the company could buckle down any time.

"Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programmes the federal government has introduced or may introduce to support US financial institutions," AnEx chief executive Kenneth Chenault said in a statement.