Keeping a watchful eye on those keeping a watchful eye
American Express (AMEX): 3+ Billion Dollars of (your) Bailout Money and a Purposeful Refusal to Lend (to you).
After a 10% RIF of its workforce in October (about 7,000 jobs) AMEX's apparent need for federal bailout money just seemed like another bullet point in the ongoing contemporary narrative of bank failures. So, it came as no surprise to me that on November 12, 2008, AMEX received a 3.4 billion dollar bailout package pledge from the Federal Reserve. However, looking closely at some of the key statistics and ratios like net profit margin, return on average assets, operating margin, etc. AMEX wasn't nearly in the same poor financial position as its quasi-peers breaking near-daily headlines at the same time.
Officially, AMEX wouldn't have been able to sell its application for federal funding if it had stated that it would use the application for the funds (not necessarily the actual funds) as a means to discard its less credit worthy members categorized in its tiered membership programs reeled-in by a series of ambitious (and effective) marketing campaigns during the late 80's - mid-90's.
Officially, a case would have been made (if the Federal Reserve had bothered to request one) that it needed the same flexibility and options afforded such competitors as Citigroup (29+ billion in bailout $) , Wells Fargo (20+ billion in bailout $), Sun Trust (4.9 billion in bailout $), Northern Trust (1.9 billion in bailout $), etc. during these unpredictable economic times.
Now that AMEX is officially considered a bank holding company (read: American Centurion), the liberal lending policies of the past 20+ years are now subject to more strident regulatory oversight. After reviewing millions of card holder's accounts, many of these accounts have been revoked, have had charges denied, have had credit lines decreased, and rates increased. The once well-promoted, revolving FLEX program has been discontinued. Hence the barrage of dismayed card holders (who'd previously been encouraged to feel like members of a club for nearly 20 years) are now on the internet writing blogs and contributing posts to social networking sites. One need only to type two phrases into Google's search engine: "american express" "decreased my"
As the owner of a small software engineering firm, my accounts with AMEX were no exception. I received the same credit line decreases, bouncing interest rates, etc. that other card holders received--only I wasn't surprised, especially when the artifacts relating to the changes to my account(s) arrived in my inbox (and mailbox) one week after AMEX received its bailout pledge!:-)
I suspect that the adherence to federal regulations was a strategic move made by AMEX's boardroom execs to dismiss as many of its card holders as possible to reclaim its exclusivity brand of the 50's/60's. I also suspect AMEX will relegate its other membership tiers to debit card holders (another benefit of its new bank holding company status). To quote AMEX's CEO Kenneth Chenault, "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. This decision to become a bank holding company does not fundamentally change American Express' core focus on the payments industry, nor will it require any significant divestitures."
Now that's raw opportunism! On the one hand, companies that do not take advantage of the circumstances before them falter, so I do understand the strength in developing corporate strategy, unfortunately--AMEX's recent and pervasive practice of slashing credit lines, revoking privileges, and increasing interest rates in order to execute strategy, causes credit bureaus to degrade the credit scores of individuals and small businesses. This prices what little available credit there is to usury (or near usury) rates.
This is where strategy and opportunism collide. In essence, AMEX is utilizing taxpayer dollars (your money) intended to prevent American banks from collapsing and intended to make more money available for consumer lending (to you), yet AMEX is systematically (justified through the use of predictive modeling) offering less credit to its existing card holders while complying with federal regulatory practices! Brilliantly done, Kenneth!
Since I think there should be consequences for boardroom decisions that are injurious to individuals, small businesses, entire communities (and perhaps even the nation) here is one set of ways in which I have countered:
1. Cash is KING. Therefore, I am wisely investing the available cash I do have in appreciating assets and in my local community. I can't apply (and receive) a 3.4 billion dollar bailout package. This means that I pay only what I owe on time to AMEX, but I do not pay off any part of my existing balances beyond the minimum required terms. In other words, I am keeping my tiered membership active simply by keeping my total balances open. Why? There are two specific reasons: (a) I've been a card holder since the early 80's. In credit scoring years, that's multiple lifetimes; (b) I'm betting on an eventual consequence for usury rates (read: think class action; think trial lawyer), at which point I'll negotiate the balance and the terms to benefit my objectives.
2. I've switched my utility, online services, FedEx, etc. charges over to my credit union account. This has stopped the monthly flow of the merchant's fees.
3. I've reduced the total amount of monthly services received for each of my providers, then wrote letters to the CEOs and board members encouraging each provider to re-evaluate the likely risk of vanishing revenues due to their relationship with AMEX.
Points 1 and 2 AMEX can live with without any discomfort. On point #3..well...the jury is still out!;-) I'll keep all of you posted on that!
...in keeping with my promise... please read here!:-)
Officially, AMEX wouldn't have been able to sell its application for federal funding if it had stated that it would use the application for the funds (not necessarily the actual funds) as a means to discard its less credit worthy members categorized in its tiered membership programs reeled-in by a series of ambitious (and effective) marketing campaigns during the late 80's - mid-90's.
Officially, a case would have been made (if the Federal Reserve had bothered to request one) that it needed the same flexibility and options afforded such competitors as Citigroup (29+ billion in bailout $) , Wells Fargo (20+ billion in bailout $), Sun Trust (4.9 billion in bailout $), Northern Trust (1.9 billion in bailout $), etc. during these unpredictable economic times.
Now that AMEX is officially considered a bank holding company (read: American Centurion), the liberal lending policies of the past 20+ years are now subject to more strident regulatory oversight. After reviewing millions of card holder's accounts, many of these accounts have been revoked, have had charges denied, have had credit lines decreased, and rates increased. The once well-promoted, revolving FLEX program has been discontinued. Hence the barrage of dismayed card holders (who'd previously been encouraged to feel like members of a club for nearly 20 years) are now on the internet writing blogs and contributing posts to social networking sites. One need only to type two phrases into Google's search engine: "american express" "decreased my"
As the owner of a small software engineering firm, my accounts with AMEX were no exception. I received the same credit line decreases, bouncing interest rates, etc. that other card holders received--only I wasn't surprised, especially when the artifacts relating to the changes to my account(s) arrived in my inbox (and mailbox) one week after AMEX received its bailout pledge!:-)
I suspect that the adherence to federal regulations was a strategic move made by AMEX's boardroom execs to dismiss as many of its card holders as possible to reclaim its exclusivity brand of the 50's/60's. I also suspect AMEX will relegate its other membership tiers to debit card holders (another benefit of its new bank holding company status). To quote AMEX's CEO Kenneth Chenault, "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. This decision to become a bank holding company does not fundamentally change American Express' core focus on the payments industry, nor will it require any significant divestitures."
Now that's raw opportunism! On the one hand, companies that do not take advantage of the circumstances before them falter, so I do understand the strength in developing corporate strategy, unfortunately--AMEX's recent and pervasive practice of slashing credit lines, revoking privileges, and increasing interest rates in order to execute strategy, causes credit bureaus to degrade the credit scores of individuals and small businesses. This prices what little available credit there is to usury (or near usury) rates.
This is where strategy and opportunism collide. In essence, AMEX is utilizing taxpayer dollars (your money) intended to prevent American banks from collapsing and intended to make more money available for consumer lending (to you), yet AMEX is systematically (justified through the use of predictive modeling) offering less credit to its existing card holders while complying with federal regulatory practices! Brilliantly done, Kenneth!
Since I think there should be consequences for boardroom decisions that are injurious to individuals, small businesses, entire communities (and perhaps even the nation) here is one set of ways in which I have countered:
1. Cash is KING. Therefore, I am wisely investing the available cash I do have in appreciating assets and in my local community. I can't apply (and receive) a 3.4 billion dollar bailout package. This means that I pay only what I owe on time to AMEX, but I do not pay off any part of my existing balances beyond the minimum required terms. In other words, I am keeping my tiered membership active simply by keeping my total balances open. Why? There are two specific reasons: (a) I've been a card holder since the early 80's. In credit scoring years, that's multiple lifetimes; (b) I'm betting on an eventual consequence for usury rates (read: think class action; think trial lawyer), at which point I'll negotiate the balance and the terms to benefit my objectives.
2. I've switched my utility, online services, FedEx, etc. charges over to my credit union account. This has stopped the monthly flow of the merchant's fees.
3. I've reduced the total amount of monthly services received for each of my providers, then wrote letters to the CEOs and board members encouraging each provider to re-evaluate the likely risk of vanishing revenues due to their relationship with AMEX.
Points 1 and 2 AMEX can live with without any discomfort. On point #3..well...the jury is still out!;-) I'll keep all of you posted on that!
...in keeping with my promise... please read here!:-)
Views: 10
About
© 2024 Created by plditallo.
Powered by
