American Express seeks $3.5B from feds

American Express Co. is seeking $3.5 billion in funds under the government's plan to directly invest in financial firms, according to a Wednesday report in The Wall Street Journal citing unnamed sources.

Earlier this week, American Express (AXP, Fortune 500) received approval from the Federal Reserve to become a bank holding company, which is a similar structure to traditional commercial banks. The credit card company now has access to financing from the Fed and the ability to grow a large deposit base.

The increased funding opportunities through government programs, including the potential $3.5 billion investment, could be a huge boost to American Express as one of its primary sources of funding has nearly disappeared amid the ongoing credit crisis.

Credit crisis
American Express relied on packaging pools of credit card debt and selling them to investors in the securitization market. As investors have shied away from purchasing all but the safest forms of debt, the market for credit card-backed securities has dwindled.

American Express is also facing a slowdown in the broader economy, which has led to more customers missing payments and cutting back on spending, hurting the company's profitability.

Shrinking profit
Third-quarter profit at American Express fell 24% to $815 million, or 70 cents a share, the company said last month. The card company took a $1.36 billion provision for loan losses, 51% higher than the year-ago quarter.

The $3.5 billion from the government could help alleviate some of the company's funding problem and help bolster reserves to protect against future losses.

Last month, the government approved a $700 billion bailout package that allows it to directly invest in financial firms. The companies can apply for a certain amount of cash based on their assets and in return the government receives preferred stock in the company and warrants to purchase common shares.

The government set up the plan in an effort to thaw the nearly frozen credit markets, which come under even more pressure in September when investment bank Lehman Brothers Holdings Inc. (LEHMQ) filed for bankruptcy protection and Washington Mutual Inc. (WAMUQ) failed.

Shortly after that time, investment banks Goldman Sachs Group Inc (GS, Fortune 500). and Morgan Stanley (MS, Fortune 500) received approval to change to bank holding companies in a similar move to what American Express just completed.

American Express did not immediately return calls seeking confirmation of the plan.

American Express to cut 7,000 jobs

Looks like the start of financial news will be on the down side again today. American Express is in the news today announcing layoffs of 7,000 people.
Let's see here now, everyday this week a company has announce layoffs. Sooner or later there won't be anyone working. I mean this is outrageous, is anybody job secure anymore?

In a stark acknowledgment of the tough times ahead in the credit card industry, American Express Co. said Thursday that it plans to cut 7,000 jobs, or about 10 percent of its worldwide work force, in an effort to slash costs by $1.8 billion in 2009.

The New York-based credit card issuer said it is also suspending management level salary increases next year and instituting a hiring freeze.

The job cuts will be across various business units, but will primarily focus on management positions, the company said.

Additionally, American Express said it plans to scale back investments in technology and marketing and business development, and streamline costs associated with some rewards programs. The company also expects to cut expenses for consulting and other professional services, travel and entertainment and general overhead.

As a result, American Express plans to take a restructuring charge of between $240 million and $290 million in the fourth quarter.

The company has been gearing up for a big restructuring for some time, first announcing in July that it planned to reduce overall costs and staffing levels, and take a related charge during the second half of the year.

"We've been engaged for the past few months in an intensive, companywide review of priorities and staffing levels," said Kenneth I. Chenault, chairman and chief executive, in a statement. "The re-engineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades. It will also put us in position to ramp up investment spending as economic conditions improve so that we can take advantage of the substantial opportunities that will be available to us over the medium to long term."

Last week, American Express reported a better-than-expected 24 percent decline in third-quarter profit. But the report echoed recent results from JPMorgan Chase & Co., Citigroup Inc. and Capital One Financial Corp. showing that the credit card environment is worsening as cardholders have trouble paying off debt and pull back their spending.

Even a company like American Express, which prides itself on catering to a more well-heeled clientele, is not immune.

The company's customers tend to be more affluent than those of other card companies, but they are more heavily concentrated in California and Florida, where the slumping housing market is taking a toll. American Express also has a higher percentage of small-business customers, and small businesses tend to miss payments more than individuals, executives have said.

"Cardmember spending is likely to remain soft," Chenault said in a statement last week. "Loan growth will be restrained, in part because of the steps we are taking to reduce credit risks, and credit indicators are likely to reflect the continued downturn in the economy and throughout the housing sector."

American Express has been able to finance its operations amid the tight credit markets, but the efforts have been tougher and more costly.

Shares rose $1.23, or 4.9 percent, to $26.44 in morning trading. Shares have traded between $20.50 and $61.55 in the past 12 months.