AmEx: Why They Became A Bank Holding Company
Futures are down as Asia and then Europe opened down. Get ready to hear a lot more economic stimulus plans from many governments. The dollar is up, commodities are down roughly 2 percent, and the bond market is closed.
1) Sign of the times: American Express' application to become a bank holding company was approved by the Federal Reserve.
What does this mean? Several analysts noted that it means AmExis assuming that the funding difficulties everyone is experiencing will be longer and more protracted than many expected.
By becoming a bank holding company, they are trying to broaden their funding sources, and will gain greater access to capital under the current and any future government-sponsored programs. And they do need capital. In the next six months, AmEx will need $4 billion in net commercial paper and $7 billiion of long-term debt.
Now they can turn to the real issue: stemming the losses coming from their consumer credit card division.
2) Las Vegas Sandsreported earnings below expectations, more importantly several projects are being delayed to preserve capital, and they are about to announce a $2.1 b capital raise. MGM and Las Vegas Sands down 7 percent pre-open.
3) Here is is the type of news we WANT to be seeing. Citigroup is joining JP Morganby offering mortgage refinancings. Reducing consumer debt burdens is a key part of getting the economy going; expect to see more of this in the very near future.
This will have long-term positive effects for a variety of reasons (reduced foreclosures, increased confidence, reworked mortgage terms could be favorable) and while it may not be moving the needle this morning, as time goes on this news has a greater effect that its being given credit for this morning.
4) REITS. Lots of discussion on the Street yesterday about the fallout from the Circuit City bankruptcy, believed to be the latest of several bankruptcies coming. Impact on the REITs was profound, with many mall REITs down ten percent or more.
It's not just poor fundamentals killing REITs: they are experiencing higher capital costs as well. Interest rates are higher, the underwriting criteria has become much stricter, and loan-to-value ratios are dropping. It means that a lot of companies are going to de-leverage.
Speaking of funding difficulties: the Yellowstone Club, an exclusive mountain retreat in Montana which boasts former VP Dan Quayle and Bill Gates among its members, filed for bankruptcy Monday because they could not secure new financing.
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