Has American Express Subprimed Itself?

When I entered the workforce during the 1980’s, it was considered quite prestigious to get a corporate American Express (AXP) Green Card for expenses. To get a Gold Card, you had to be really special. Today, all the newspapers are telling us that AXP will take a $440M charge for bad loans and the stock is taking a huge hit. It wasn’t that long ago that AXP required its cardholders pay their bills in full each month.

Over the last few years, however; we have been seeing endless American Express commercials emphasizing “you can pay over time”. Both for businesses and consumers. CEO Kenneth Chenault said that AXP focuses on the prime and affluent customers, but their advertising doesn’t show this. As I said in a previous post, their “credit card with a savings account” is directed squarely at the financially naive customer. ( One brilliant American Express )

The problems followed the housing market (according to the CEO) – primarily in California and Florida. I guess their customers could no longer rollover their credit card debt into home equity loans. He claims that the job outlook and the economy are hurting their customers. But, it should be no surprise that as American Express broadened its base, it started taking on more risky customers. AXP has been no different than other card issuers that depended on rising home values to bailout all forms of debt.

Sphere: Related Content