Later On

A blog written for those whose interests more or less match mine.

Is this Henry Paulson’s idea of a joke?

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Look at this:

American Express Co., the credit-card company that’s converting into a bank, will get $3.39 billion of fresh capital from the U.S. rescue fund to ensure its survival as the recession heads into a second year.

American Express joins more than 190 regional banks, commercial lenders, insurers and card issuers seeking at least $75 billion from the second phase of the Treasury’s bailout plan for financial firms. Faced with rising defaults by cardholders, the New York-based firm won Federal Reserve approval to become a commercial bank last month and announced in a statement today it gained access to the $700 billion Troubled Asset Relief Program.

“The ability to avail themselves of government funding takes the dire scenarios off the table,” said Richard Shane, an analyst at Jefferies & Co. in San Francisco. Shane, who initiated the shares with an “underperform” rating in November, said today he expects “significant losses” in the loan portfolio.

The Treasury’s Troubled Asset Relief Program will buy preferred shares that pay annual dividends of 5 percent for the first five years and 9 percent in following years, American Express said. The company will also sell warrants that entitle the Treasury to buy common stock of up to 15 percent of the preferred purchase.

American Express rival Capital One Financial Corp. has preliminary approval for $3.6 billion from the U.S. and Discover Financial Services asked for $1.2 billion. Discover, based in Riverwoods, Illinois, was awarded bank holding company status last week.

Card issuers, along with securities firms including Goldman Sachs Group Inc., insurers like Hartford Financial Services Group Inc. and commercial lender CIT Group Inc., sought status as bank holding companies to tap the government’s rescue fund. CIT said today its request for $2.33 billion won preliminary approval…

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Written by LeisureGuy

24 December 2008 at 10:18 am

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