AmEx In Full Retreat From Credit Card Business

Almost two weeks ago, I wrote this followup post concerning American Express' rough treatment, without cause, of a colleague. In a prior post, linked to the followup, I had written,

"Going back some twenty years, it was common knowledge at Chase Manhattan Bank that credit card users charged more in proportion to their credit lines. The key to the process of profitably growing credit card businesses is to sensibly extend more credit to capable, creditworthy customers, who will then, as a group, on average, obligingly carry higher balances.

AmEx has stood this principle on its head now, cutting credit lines, and, thus, balances and spending with their cards.

It should come as no surprise that the firm is now seeing a plunging net income."

Yesterday's Wall Street Journal published an article entitled, "AmEx Encourages Cardholders to Leave."

In this latest piece, Journal reporter Mary Pilon wrote that AmEx is now literally paying some cardholders with a $300 gift card to close their account. Essentially, the firm believes some customers are accidents waiting to happen, and want payment in full, less a $300 writeoff, before something worse occurs.

It seems incredible that the firm is basically admitting it has failed in its prior judgment as to who were good credit risks, and who were not.

If you needed more evidence as to the total bankruptcy of AmEx's business model, I guess this would be it. They lost their natural funding hedge years ago. Then they converted to become a commercial bank, in order to tap taxpayers for help in funding themselves, when debt markets were no longer forthcoming.

Now, the firm is shedding customers by paying them a rebate to leave.

Truly, if any financial services firm should have been left to die on its own, American Express is that firm.

AmEx's share price hasn't been significantly or long above its 2000 high in the past nine years. Congratulations, Ken Chenault, on a stellar management job!