American Express, which operates two banks in addition to its travelers check, credit card and travel businesses, won approval to become a bank holding company subject to regulation by the Federal Reserve.
As a result, the largest travel agency in the world will be owned by a bank, a notion that historically has been anathema to the trade.
Stephen Feeley, director of communications for American Express Business Travel, said the change in status would have no effect on the company's travel agency business. "It will be business as usual," he said.
However, there is an important change for the company as a whole in that it will gain access to loans made available through the government's $700 billion bailout plan for financial institutions. For some industry observers, that raises a pointed question: Will access to tax dollars give American Express an unfair competitive advantage over all other agencies if those funds are used to meet credit needs for the travel business?
When approving AmEx's conversion to a bank holding company, the Federal Reserve did not specifically address the effects on the company's non-banking businesses. Instead, it characterized AmEx's nonbanking activities as "financial in nature or incidental" to its banking activities. It also determined that its non-banking activities, if operated under a new bank holding company status, were "not likely to result in significantly adverse effects, such as ... decreased or unfair competition."
However, it is not clear yet if AmEx would be limited in the ways it could apply any funds it might borrow under the federal bailout plan so as not to unfairly benefit its travel business.
Joanna Lambert, vice president for corporate communications for American Express Co., said she had "no idea" if the Treasury Department, which is making the deals, would build that kind of fence around a loan to the company "because we haven't gotten a loan." Requests for comment from Treasury were unsuccessful.
News reports have said AmEx is asking to borrow $3.5 billion, but Lambert declined to comment on the report or even confirm that an application had been made. Despite her silence, it seems clear that AmEx sought status as a bank holding company in order to have access to the government bailout benefits. After the Federal Reserve's approval, the company issued a statement that the move "further diversifies the company's funding sources and access to capital and provides opportunities to expand its deposit-taking capabilities."
AmEx operates the American Express Centurion Bank, an industrial loan company, and the American Express Bank, a federal savings association, both based in Salt Lake City and both as direct subsidiaries of American Express Travel Related Services Co. AmEx uses these subsidiaries to issue proprietary credit and charge cards, fund cardholder loans and offer certificates of deposit.
Lambert said AmEx aims to increase its deposit-taking activities by selling more certificates of deposit and by selling more of its recently launched retail notes, meaning fixed-income investments that are essentially loans to American Express.
In announcing its plan to become a bank holding company, AmEx said it wanted to be on an equal footing with other financial institutions. Under terms of the Federal Reserve approval for a bank holding company, AmEx said it did not have to make "significant divestitures," but Lambert said it is not certain yet if the company will have to sell one or more of its "very small" businesses.
For decades, from the late '60s into the '90s, travel agents fought to keep state and federal banks out of the travel business, regarding them as sources of unfair competition. Agents were often concerned about the competitive impact of cross promotions, whereby a bank might offer a travel benefit to someone opening a new bank account.
But banks today generally are able to operate or own agencies or other businesses, sometimes with conditions. In any case, the issue of banks in travel has largely dissipated in the last decade as other urgent issues have taken precedence.
News that AmEx is becoming a bank holding company has produced muted responses.