American Express won the Fed’s approval unanimously and without the application’s standard 30-day waiting period because of “the unusual and exigent circumstances affecting the financial markets,” according to a Fed statement.

High unemployment and a severe drought of credit are plaguing the consumer market, causing them to spend less. Worse, it’s caused many to be unable to pay existing debts such as credit cards.

October was the first month in 15 years that credit card companies weren’t able to sell bonds backed by customer payments, Bloomberg reported. And this upgrade to commercial bank status allows American Express – the fourth-largest U.S. credit card company – access to government funds.
American Express becomes the third major institution to switch over to a commercial bank in as many months, joining Goldman Sachs Group, Inc. (GS) and Morgan Stanley (MS).

In the past year, American Express has lost nearly half its market value as it posted four consecutive quarters of declining profit.

Mixed Analyst Reactions

Oppenheimer Holdings, Inc. (OPY) analyst Meredith Whitney said that the approval will give American Express a more stable mix of funding and allow it to cut borrowing costs.

“Whether institutions like it or not, the only prudent thing to do is assume a protracted worst-case funding scenario,” Whitney said in a note to investors, Reuters reported.

While she maintained her “perform” rating on American Express’ stock, she said that “concerns for American Express and other consumer lending-related stocks continue to be worse-than-expected credit losses.”

Scott Valentin of Friedman, Billings, Ramsey Group, Inc. (FBR) wasn’t as generous, the Associated Press reported. While maintaining his “underperform” rating and $22 target price for American Express stock, Valentin said the company’s earnings and model “are under severe stress in the current environment.”

Source:American Express Now a Commercial Bank

• American Express Co. (AXP) said yesterday (Thursday) that it plans to cut 7,000 jobs, or 10% of its global work force, in an effort to reduce costs by $1.8 billion in next year, The Associated Press reported. The company will also suspend management-level salary increases next year and institute a hiring freeze. American Express has reported four straight quarters of profit declines.

• Oil prices fell more than 2% yesterday (Thursday), after economic data showed a 0.3% decline in gross domestic product (GDP). Light, sweet crude fell $1.54 at settle $65.96 a barrel, after trading as high as $70.60 earlier in the day. Oil is down 55% from the record high $147.27 a barrel reached in July. It is down 30% in October alone.

• The governors of six states have sent a letter to federal officials asking that they take “immediate action” in assisting troubled domestic automakers, The Associated Press reported. The governors of Michigan, Delaware, Kentucky, New York, Ohio and South Dakota all asked U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke to extend America’s domestic car companies the same kind of aid offered to financial institutions.

• Motorola Inc. (MOT) yesterday (Thursday) said its fourth-quarter results would miss expectations and that its mobile phone business would deteriorate even further in 2009, forcing the company to delay its plan to spin off the unit, Reuters reported. Motorola Co-Chief Executive Sanjay Jha outlined a plan to save the company $800 million in costs in 2009, by cutting 3,000 jobs, or 4.5% of the company’s workforce.

• Eastman Kodak Co (EK) yesterday (Thursday) cut its 2008 revenue growth and earnings forecast after posting a slide in third quarter revenue. The company now sees revenue declining by 3% to 5%. Kodak’s third-quarter revenue fell 5% to $2.41 billion. Net income was $96 million, or 34 cents a share, up from $37 million, or 13 cents a share, one year ago.

• Waste Management Inc (WMI) yesterday (Thursday) posted an 11.5% jump in third-quarter earnings.  The company reported net income of $310 million, or 63 cents per share, compared with $278 million, or 54 cents per share, a year earlier. Revenue rose 3.6 % to $3.53 billion.

Source: Global Investing Roundups Friday, October 31st, 2008