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Table of Contents

Lead Story

New moves for more mojo in '09

News

Industry Update

Online shoppers stay the course

Morgan Stanley sues Discover

TARP eases AmEx woes

Is TALF on target?

RBS staves off hackers

Shift4 podcast available

Features

Mt. Snow clear for summit

Getting smart about contactless

Industry Leader

Paul Martaus –
The go-to guy

Selling Prepaid

SellingPrepaid now in print

Prepaid in brief

Going boldly into m-commerce

Achieve wellness with rewards

A new outlook for the unbanked

Views

How to preserve self-regulation

Biff Matthews
CardWare International

A countertop tonic for recession blues

Bulent Ozayaz
VeriFone

Changes afoot, challenges ahead

George Sarantopoulos
The Access One Group

Education

Street SmartsSM:
Become an enterprising networker

Jason Felts
Advanced Merchant Services Inc.

The new age in customer retention

Christian Murray
Global eTelecom Inc.

Rising above recession: 10 tips

Curt Hensley
CSH Consulting

PCI, an aspect of PII

Ross Federgreen, Ken Musante and Theodore Svoronos

PCI: What to hope for in 2009

Tim Cranny
Panoptic Security Inc.

Weathering the coming payment storms

Jeff Fortney
Clearent LLC

Company Profile

Charge Card Systems LLC

New Products

Seek profitable harbor with POS

Harbortouch POS Systems
Company: United Bank Card Inc.

Securing data on the edge

Cipher Security Module
Company: Semtek Corp.

Inspiration

Beyond resolutions

Beyond resolutions

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

January 12, 2009  •  Issue 09:01:01

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TARP eases AmEx woes

American Express Co., the fourth-largest card issuer in the United States, said the U.S. Department of the Treasury gave preliminary approval for the company to participate in the Troubled Asset Relief Program (TARP). AmEx reported it will receive $3.39 billion from the financial institution rescue fund to ensure the card brand's survival.

In exchange for the funds, AmEx agreed to issue and sell to the Treasury Department preferred stock worth approximately $3.39 billion and warrants for common stock worth up to 15 percent of that amount. The preferred shares will pay dividends at a rate of 5 percent annually for the first five years and thereafter 9 percent annually.

When the U.S. Federal Reserve approved AmEx's application to become a commercial bank in November 2008, the company gained access to a portion of TARP. Previously, the company would package securities backed by consumer loans and sell them to raise capital.

TARP was originally conceived to purchase mortgage-backed securities and other investments that became nearly impossible to sell in the wake of the housing market meltdown. These assets poisoned balance sheets, leading to massive write-offs that resulted in the collapse or near collapse of some of the country's biggest financial institutions.

Financial services firms have faced dwindling funding options as the credit crisis has mushroomed in recent months. AmEx said it sought funding from the government to replace operating capital it could no longer raise in the securities market. The securitization market, which AmEx exploited to raise operating capital, all but evaporated when investors avoided purchasing the company's stock.

Efforts to stabilize

Becoming a bank holding company allowed AmEx to apply for an array of government funding and lending programs. Regulators said they approved AmEx's application for TARP funds because of the "unusual and exigent circumstances" roiling the financial markets.

"The ability to avail themselves of government funding takes the dire scenarios off the table," said Richard Shane, Analyst for San Francisco-based consulting firm Jefferies & Co. "The company was staring at $24 billion of debt maturing over the next 12 months. While they may have been able to pay that off, gaining access to TARP funds removes any concerns about financial insolvency.

"In the long term, the increased regulatory oversight banks face, and the higher capital levels they have to maintain, may require American Express to scale back its lending, thereby reducing profit. This means potentially lower leverage going forward, as well as potentially diminished returns."

AmEx officials said the company was hit hard by mounting credit losses which, in turn, forced the company to cut nearly 10 percent (7,000 jobs) of its global workforce in October 2008 after profits fell 24 percent in the third quarter of 2008. Credit losses rose 50 percent in the same period.

"We are in a significant financial crisis," said Marshall Front, Chairman of Front Barnett Associates, a Chicago law firm. "The Treasury and the Fed are making up a game plan on the fly and they are trying to strengthen many financial institutions in order to get them through this period."

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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