Fed OKs American Express as bank holding company http://www.reuters.com/article/marketsNews/idINN1048860120081111?rpc=44 By Juan Lagorio and Patrick Rucker NEW YORK/WASHINGTON, Nov 10 (Reuters) - American Express Co (AXP.N: Quote, Profile, Research, Stock Buzz) said it won approval to become a bank holding company, in a step that could cut its borrowing costs and give it more access to government money. American Express, the fourth-largest U.S. credit card issuer, offered more credit to more customers even as the housing crisis began last year, and is paying the price as delinquencies rise. Adding to its difficulties, its main sources of funding have grown more expensive as secured and unsecured bond markets have shut down. Investors are wondering whether financial companies that loan money but fund themselves mainly in the bond markets are a thing of the past. Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) both became banks in September. With American Express winning U.S. Federal Reserve approval to convert to a bank holding company, it can issue bonds that are government guaranteed through the end of June 2012. The company can also apply to receive money under the U.S. Treasury's $700 billion Troubled Assets Relief Program, which is making direct investments in banks, insurers and possibly other financial companies. Analyst Moshe Orenbuch at Credit Suisse estimates that American Express would be eligible for several billion dollars of capital under the program. The company will also find it easier to buy banks now, and take deposits from consumers and companies, which can be a cheap source of funding. "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 ... to support U.S. financial institutions," Kenneth Chenault, chairman and chief executive officer of American Express, said in a statement. "With Federal Reserve oversight we should gain greater access to the capital on offer," he added. But investors cautioned that being a bank does not solve all of American Express' difficulties. A growing number of financial institutions are looking to buy banks and gather deposits. "There's a lot of competition for deposits now, and pricing for deposits is still high," said Blake Howells, director of equity research at Becker Capital Management in Portland, Oregon. American Express' borrowing costs relative to a benchmark rate have risen dramatically this year. The company is paying about 1.65 percentage points more than one-month Libor to fund itself, compared with its average in recent years of 0.20 to 0.40 percentage point. CREDIT PRESSURE, TOO The funding pressure is combining with credit pressure. The default rate among its credit card clients in the United States almost doubled in the third quarter of 2008 from a year earlier. "An unemployed consumer is going to be a big challenge," for American Express, Anton Schutz, president and chief investment officer at Mendon Capital, said at the Reuters Global Finance Summit, on Monday prior to the announcement. "Their clients are hurting and, on top of that, their upper income client base isn't spending either, which is hitting the travel side of their business." American Express already has two U.S. bank subsidiaries: American Express Centurion Bank, an industrial loan bank chartered in Utah, and American Express Bank FSB, a federal savings bank. Through those institutions, the company issues proprietary credit and charge cards, funds cardmember loans and offers certificates of deposit. But those banks are relatively small. Goldman Sachs and Morgan Stanley became bank holding companies in September, meaning that when Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) buys Merrill Lynch & Co, there will be no standalone U.S. investment banks left. Other companies that lend and fund themselves in the bond markets are looking at becoming bank holding companies, most notably CIT Group Inc. (CIT.N: Quote, Profile, Research, Stock Buzz). (Additional reporting by Dan Wilchins in New York and Ajay Kamalakaran in Bangalore; Editing by Dan Grebler, Jeffrey Benkoe and Andre Grenon)
If they are going to give money to competitors why not ask Sterling applies for share of bailout money By PURVA PATEL Copyright 2008 Houston Chronicle Nov. 18, 2008, 11:18AMShare Sterling Bancshares has filed an application to participate in the federal government’s program meant to help shore up bank capital. Sterling has applied for the full amount it is eligible for — 3 percent of risk-weighted assets or approximately $125 million, the company said in a statement. “The additional capital would enhance our capital levels and better position Sterling to continue its strategy of carefully growing loans and deposits, building new branches, and making acquisitions,” said CEO J. Downey Bridgwater, The bank doesn’t need the capital but is applying anyway, he said. Among Houston’s other publicly traded banks that say they’re well capitalized, MetroCorp Bancshares and Encore Bancshares also have applied. Prosperity Bancshares said it will not apply because it doesn’t need to.
Theory and execution are different animals, it would be naive to think a couple university students can simulate a reverse auction, then it must be easy to do in the real market. I happen to agree we need to take those assets off banks' books, but Henry Paulson realized it would be impossible to price assets within the time frame they wanted.
I don't think the gradaute student test was intended to be some sort of "proof" of viability. Just another data point in favor of said methodology. It's been utilized before, and some of the issues have been discussed. Understandable, but the closed nature of the dealings is just nasty. I don't like the bailout to begin with, but secretly handing out massive cash payouts from the taxpayers is wholly unacceptable on an entirely new level.
Apparently in the UK they bailed out their banks and got 10-12% interest and voting shares and seats on the board of directors. Americans get 5%n on-voting shares and virtually no control whatsoever. Just another example of "crony capitalism" or welfare for the rich. Paulson giving out money to his buds based on his future plans to make more money. How would we know? We don't know.
paulson realized they needed to act asap when the commercial paper market froze up. when this market froze up he knew that there wasn't ample time to create the necessary exchanges and get the clearing firms setup to clear all the trades. the other problem that comes about when you create an exchange that goes against the "keep everyone afloat" philosophy is it forces the assets on people's to actually have a price if an exchange is created. so let's say you have this exchange and the market starts trading these thinly traded securities at MUCH MUCH lower prices (and likely much much more accurate and realistic prices) than where the holders are pricing them now then you potentially have some bankruptcies on the way pretty quickly.
So, Robbie you trust Paulson and that is basically enough? Paulson in his career was heavily involved in pushing for the type of deregulation that led to this mess.Care to comment on how the tax payers and that is you, too, have gotten a lousier deal than they got in the UK. For all I know Paulson is doing his best for the country and ignoring the present and future wealth of himself and his friends, though there is an obvious extraordinary conflict of interest. His past would suggest otherwise, whether out of mis-placed extreme market ideology or desire to max out his personal wealth. Everyone is up in arms about giving the auto companies money and they might just do the same stupid things. Why not have similar concern with the financials. Paulson and gang seem to be trying like hell to give them money with no strings attached. A major contradiction.
I actually talked to a few PhD's working for the Treasury on the bail out plan, it was evident they had little idea on how complex the trouble assets are. They thought they could apply some global pricing model on everything, which is not close to being the case. Now that we brought some time, maybe Obama's team can use the second half of the 700 billion to work on those problem papers.
no i'm not trying to say i agree with what is going on. i am just trying to explain his thought process. nothing more.
Well, a reverse auction driving the prices of the securities down would require banks to mark-to-market the price on their books which would result in an immediate write down since a price level would be set. The new plan is much better because the federal government should get a lot of the money back since they will be receiving dividends, warrants, and eventually the principal once the markets clear up.
