BrotherMaynard

Why is the Market Ignoring American Express's Bad Report?

"of the 95billion enterprise value that AXp is getting, a lot of premium is already built for their gnsm business"

good luck valuing any financial based upon "enterprise value"...i'm sure it will yield lots of useful results.

Why is the Market Ignoring American Express's Bad Report?

"your assumption is that you can sell the credit card business at par"

that doesn't make any sense..."par" has nothing to do with it.

the assumption is that the gnsm biz is capitalized at a valuation somewhere between v and ma. if anything this biz would get a premium as it is an asset-light (70% roc) model

Why is the Market Ignoring American Express's Bad Report?

"I dont think you can compare directly AXP with MA or V in terms of market cap since MA and V has no debt whereas AXP has huge amount of liablities"

yes you can...its simply sum-of-the-parts...assume axp spins gnms business out as a standalone.

Why is the Market Ignoring American Express's Bad Report?

this guy has no clue how to value companies.

anything below $20 assumes amex is no longer a going concern.

how about mentioning amex's "operating leverage?" they were profitable in one of the worst quarters in economic history, for heavens sake (even w/o the onetime).

Everyone knows that the whole reason amex's portfolio looks as bad as it does is because during the waning months of the credit bubble, they started going after the really low-quality borrowers...obviously, they incurred more expenses to do this. now, they need those borrowers like they need a hole in the head...thus, they slash expenses across the board (some 20%+...40% in advertising) because they no longer need those operations to take share. if anything is"ridiculous" its that you didn't bother to point this out. they jettison the low quality business operations just as fast as the low quality business decays. premium multiples get assigned to companies that have this sort of operating leverage. 20% tangible ROE isn't a fluke.

in terms of valution, their global network and merchant services business (which is exactly like visa/mstcrd...aka just the tech, clearing and settlement biz) made $1bn in earnings off of a capital base of $1.4bn...thats a 70% return on capital (go to page 39 to see these stats)phx.corporate-ir.net/E.... Mastercard made HALF that amount last year, yet mastercard is worth $22bn...Visa made 1.3 bn trailing 12 months and they are worth $47bn...amex's GNMS biz is somewhere between there, so that business alone is worth $25bn to $30bn using similar cap rates as ma and V. So at $29bn (even after the massive rally), amex is still completely discounting away the other 3/4ths of its business.

is there a good reason to think those businesses will take the company down? that's why we look at its liquidity profile.

(go to slide 27 from the ppt presentation...different from the above link)--- they have $25bn in cash and deposits to date, and $25bn in obligations over the next 12 months...deposits mind you are up roughly 15bn since Oct...that's a run rate any bank would be envious of...that's not including another 10bn in undrawn bank facilities and an untapped conduit. the bankruptcy of amex was on the table until they were allowed to gather deposits. deposit gathering easily offsets securitization...and at this point, is hundreds of basis points cheaper. their tangible capital to risk weighted assets is above 10%, which is better than any large bank, extant. so the capital positioning is as strong as its been since this mess started. keep in mind, at current valuations, the credit card portion of the business is just an option now, as the stock has completely discounted this away.

so keep calling things "ridiculous" with your undisciplined complaining and whining...that sort of emotional rubbish has no quarter in the investment profession...of course, you should know this...right? after all, you're a self-dubbed "financial top gun"