American Express (AXP) sure is having a rough time. It’s so bad, in fact, that they’ve decided to re-organize such that they can qualify for help under the economic bailout plan. Under their former business model, they packaged credit card debt into bonds which were then sold to institutions seeking income-generating investments.
This structure has helped shield Amex from delinquencies while still receiving the lion’s share of the merchant fees. Unfortunately, the market for credit card-backed securities has dried up, leaving Amex with more debt than they can easily manage.
As a result of all of this, Amex has asked the Federal Reserve for permission to become a “bank holding company,” which qualifies them for help under the economic bailout. According to reports, they’re seeking a $3.5 billion investment under the terms of the bailout plan. Perhaps this is why they’ve been reducing credit limits so aggressively.