markb

The Long Case for American Express

This is a good analysis and I agree with its conclusion.

People conclude the world is ending because AXP has some credit losses. But AXP has been building share with the knowledge that increased losses will result as the new clients are seasoned: an investment in the future. They aren't too worried because V and MA are in effect funding those losses with the $4B pretax they need to fork over. Once the good loans are seasoned and the bad ones are written off, AXP will be sitting pretty.

V/MA investors are full of themselves now because they don't have credit risk. But the cycle will turn and they won't have credit profit. Further, they won't have a friend in the banks anymore. They are simply processors with a monopoly, and they still have a big target on their backs from antitrust regulators. As Markham points out, they don't own their customers so AXP will try and pick off their best ones. They will be targets of merchant ire. They don't really have a strong position in foreign intracountry charges so don't benefit from that growth. They are overvalued.

This idea that "V/MA good, AXP bad" regardless of current valuation is so simplistic it would be funny except that a lot of naive investors may end up getting burned.