Week in Review
March 31, 2008
American Express to Buy GE Money Unit for $1.1B
American Express Co. agreed to purchase General Electric Co.'s GE Money's corporate-payment services, which provides commercial payment and purchasing cards to corporations, for $1.1 billion.
The sale, expected to be completed by the end of the month, follows a deal announced earlier last Thursday, under which GE would sell its GE Money operations in Germany, Finland and Australia as well as its credit-card and auto businesses in the U.K., in return for assets held by Spanish banking giant Banco Santander SA.
The deals come as GE seeks to redeploy its capital in the financial-services industry amid the turmoil in the stock markets.
GE created corporate-payment services in 1992 to issue corporate travel and entertainment cards and purchasing cards to employees. The unit, which now caters to more than 300 large corporate clients, generated more than $14 billion in 2007 global purchase volume and maintained $1.1 billion in receivables at Dec. 31, the companies said. Its billed business has grown at a compounded rate of 18% over the last five years. It employs about 350 people, largely in Salt Lake City.
The transaction calls for GE, the unit's largest client, to become a client of American Express under a multi-year pact, the companies said.
For American Express, the deal is part of an ongoing strategy to focus on the payments sector and follows the sale last month of its international banking subsidiary. Corporate-payment products are similar to those offered by American Express' commercial card business, which handles the travel, entertainment and purchasing spending by employees of large corporations and mid-sized companies. Accounts typically are paid in full at the end of each month, rather than through a revolving credit account.
The sale also includes the purchase of GE's vPayment technology, which permits the processing of large payments with fraud controls.
Mark Begor, president and chief executive of GE Money's operations in the Americas, said the unit "has been a terrific GE growth story, and [last week's] announcement underscores the value we've created from a business that essentially had a single client only about a decade ago. This transaction meets GE's strategy of redeploying assets in financial services and is a win for GE, our shareowners, and our customers." - Mike Barris, Dow Jones, for American Banker
Investment Banks Slated to Become More Accountable
By John Morgan
Treasury Secretary Henry M. Paulson, Jr. said Wall Street investment firms should provide more information on their financial condition as a caveat to the groundbreaking decision by the government to permit them to borrow money from the Federal Reserve.
"The Federal Reserve acted promptly to resolve the Bear Stearns situation and avoid a disorderly wind-down," Paulson said Wednesday. "It is the job of regulators to come together to address times such as this, and we did so. At this time, the Federal Reserve's recent action should be viewed as a precedent only for unusual periods of turmoil."
Paulson said investment firms should be subject to the same type of regulation and supervision as commercial banks if they're looking for regular access to the discount window, but he stressed that regular access will be unlikely.
"Despite the fundamental changes in our financial system, it would be premature to jump to the conclusion that all broker/dealers or other potentially important financial firms in our system today should have permanent access to the Fed's liquidity facility," Paulson said.
Flows to Emerging Market Debt Top $5.5 Billion
By John Morgan
JPMorgan said emerging market external debt increased inflows marginally from $4 billion in February to $5.5 billion.
Mutual funds continued their rotation from external to local debt, Asia saw and increase in overweight positions, Latin America underwent a decrease, and emerging Europe, Middle East and Africa were unchanged in terms of overweights.
Investors are becoming "increasingly wary of the rise in inflation across [emerging markets]," the bank said. "Investors widely expect [emerging market foreign exchange and fixed-income markets] to perform best between now and year-end; they expect corporate external debt and cash to be the worst performers."
Beyond Mortgages: A Keen Look at Consumer Credit
By Harry Terris, American Banker
In the current downturn, rooted in the bursting of the housing bubble, mortgage credit quality was the first to falter.
Now with defaults on credit cards, auto loans and other types of consumer debt accelerating, a fuller picture of overextended American households is emerging.
Though additional pain is inevitable, panelists in a roundtable discussion American Banker hosted last week predicted that the mortgage losses that have shaken the foundations of the global financial system would not be matched by other consumer loans.
"Mortgage losses are so far off the scale," said Kenneth A. Posner, a Morgan Stanley analyst. "There's mortgages and everything else."