American Express Becomes A Bank In Order To Get Two Pennies To Rub Together

American Express, the credit card of choice for showoffs which you can’t seem to actually use anywhere, is to become a bank now that people are failing to pay back their credit on a massive scale, as well as being loath to take out new credit in such depressed times. Twice as many people failed to pay back loans in the last quarter compared with the same quarter last year.

Unlike Visa, who merely process payments and are therefore rolling in it, AmEx actually make loans, hence their vulnerability. It’s the loans bit of the company, confusingly called American Express Centurion Bank, that is now actually going to be a bank like it always said it was. Being a bank means it can accept revenue-generating deposits of course, but also gain access to the Federal Reserve Bank Discount Window, which in its own words, “allows eligible institutions to borrow money, usually on a short-term basis, to meet temporary shortages of liquidity”.

In other words, they’re getting a chunk of that $700bn to keep their cash levels up; they may also get access to some cash from the Troubled Assets Relief Program. I love these euphemistic terms: Discount Window sounds like some nice bit of a drive-thru, Troubled Assets Relief like a cosy rehab centre for subprime.

So is AmEx going to become a retail bank like the others on the high street, or is this merely a shifting around of terms to allow it access to bailout funds and business deposits? They haven’t announced what its plans are exactly, but it would be odd if AmEx, home of the $2500-a-year status symbol that emerges sexily from calfskin wallets and slips back again, started popping up in towns from Washington to Wasillia.

Posted by Ben Beaumont-Thomas in Hot Money | November 11, 2008 11:33AM |