icandoitdon

American Express Is Now a Bank

i think barakobama is secretely either bernake or paulson. they both believe in free lunches and half-truths.

here's a little remedial education on why charge off's do matter :

In a growing economy, charge offs grow but so does income. everyone is happy, including the idiots who played the credit card company. but in a severely contracting economy, charge offs grow as income shrinks. and if income shrinks deeply enough and charge offs grow disproportionaly, that can be a big problem. income wouldn't just shrink...it would collapse. throw a credit crunch into the mix, resulting from years of credit abuse by consumers and businesses alike, and it's a prescription for failure of any institution that depends heavily on credit as both a borrower and lender...particularly the cheap and plentiful kind that we've had for the last 6 years.

AMEX relies on a growing economy to cover its growing charge off's, due in no small part to declining credit standards, which have accelerated in recent years. that prop has been kicked out from under them. it also relys on cheap and plentiful credit to fund its day to day operations. that prop is gone too. without it, their profitability goes into the toilet. if profitability goes into the toilet so does their credit rating. without an investment grade credit rating they might as well shut their doors.

AMEX has looked into the future and doesn't like what it sees...a severly contracting economy, tapped out consumers, increasingly high charge offs, reduced profitability and limited access to credit at much higher prices than they've historically paid. that's why they became a bank...so they could assure themselves of an endless supply of funds at government rates rather than market rates.

AMEX would never have made this move if not for fear that their traditional franchise is impaired.