US government to invest $3.39 billion in American Express

Credit card firm American Express, now a bank holding company, will receive $3.39 billion from the US government's bailout package for the financial sector, its CEO Ken Chenault said in memo to the staff.

The treasury will use the money to buy redeemable preference shares in American Express, which has been hit by the financial turmoil, to increase its access to capital.

American Express will have to pay five per cent annual dividend on the government shareholding for the first five years and then nine per cent annually thereafter.

"These preferred shares will not come with the full voting rights that common shares provide. The Treasury Department will also receive warrants to purchase common shares with a value of up to 15 per cent of its preferred share investment," the memo noted.

"The Treasury Department is making an equity investment in American Express similar to the ones it has been making in some of the largest and best-capitalised US banks,'' the memo pointed out.

The Treasury will purchase $3.39 billion in newly issued American Express preferred shares. The proceeds from the sale will further strengthen our capital position," Chenault said in his note to employees.