Insolvency 401: Take deposits

Well, I suppose this would have been a bigger shocker two months ago. Nonetheless, this is immensely bad, if not surprising.  AMEX is joining Goldman Sachs and Morgan Stanley as a deposit institution. Well I guess we know they do have credit cards.

Fed OKs American Express as bank holding company

NEW YORK/WASHINGTON (Reuters) – American Express Co said it won approval to become a bank holding company, in a step that could cut its borrowing costs and give it more access to government money.

American Express, the fourth-largest U.S. credit card issuer, offered more credit to more customers even as the housing crisis began last year, and is paying the price as delinquencies rise.

Adding to its difficulties, its main sources of funding have grown more expensive as secured and unsecured bond markets have shut down.

Investors are wondering whether financial companies that loan money but fund themselves mainly in the bond markets are a thing of the past. Goldman Sachs Group Inc and Morgan Stanley both became banks in September.

As a bank holding company, American Express can issue bonds that are government guaranteed through the end of June 2012, and apply to receive money under the U.S. Treasury’s $700 billion Troubled Assets Relief Program, which is making direct investments in banks, insurers, and possibly other financial companies.

The company will also find it easier to buy banks now, and take deposits from consumers and companies, which can be a cheap source of funding. [More]

Let’s see, who’s next?  GE Bank, GM Bank, Bank of United Airlines, Circuit City Bank, Bank of Starbucks, Macy’s Bank, or if things really get crazy, Girls Gone Wild Bank, or I suppose it would be aptly, Fed Gone Wild Bank.

Source:
Fed OKs American Express as bank holding company
Juan Lagorio and Patrick Rucker, Reuters, November 10, 2008
http://www.reuters.com/article/topNews/idUSTRE4A97Z920081111

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