Monday, February 23, 2009

AmEx Will Pay To Lose You As A Customer

Things in creditcardville are very, very ugly. The latest datapoint comes from American Express which will pay cardholders $300 each to close accounts so the lender can reduce the risk of defaults. The operating implications to AXP's business are so obvious based on this development that they do not even merit commentary. People who get the buyout offer have until April 30 to pay off their entire balance, and will likely lead to a forfeiture of any program points accrued to that point.

“What AmEx is trying to do is move to the front of the line in terms of getting paid back” by customers who owe debts to multiple lenders, said Michael Taiano, an analyst at Sandler O’Neill & Partners with a “hold” rating on the company. “They clearly grew loans faster than their competitors in the years leading up to this financial crisis.”
While previously credit card companies would cherish "high risk" customers as these would be charged the highest APR rates on rolling balances, AXP is effectively claiming that loss rates are about to skyrocket, presumably based on internal data that will probably become public as soon as AXP's next earnings report.
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