Wow, Amex converts to a bank holding company

One could argue that this is a pre-emptive move but it looks almost like a desperate move in my eyes. MarketWatch is reporting that American Express is converting to a bank holding company:

American Express Co. got approval from the Federal Reserve Board to form a bank-holding company, the central bank said late Monday.

In becoming a holding company, the credit-card giant would get access to the Federal Reserve's emergency-lending facilities, but also will be subject to greater scrutiny by regulators.

The U.S. central bank said that both American Express and its affiliate American Express Travel Related Services are approved to form bank-holding companies, as the Amex group converts its Salt Lake City -based American Express Centurion Bank into a full bank.

The Fed waived the normal 30-day waiting period on the application.


The move is to get access to the FedRes window. In return, it is giving up some of its freedom and will regulated more.

This is actually quite surprising to me. One can argue that this is nothing more than an attempt to get cheap money from the government. But it's not clear. Being somewhat pessimistic, I wonder if American Express is facing serious issues. They have been reporting deteriorating numbers for several quarters now and I wonder if they are seeing some serious problems.

If Amex is indeed facing problems then it is not good news for the economy. I was expecting the non-real-estate debt defaults to stay moderate (higher than at any point in the last 20 years but in line with past recessions like 1990 or 1982.) But if there is serious deteriorating with consumer credit, it is not going to be pretty.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>