With the U.S. Treasury tapping into the $700 billion Troubled Asset Relief Program (TARP) to the sum of $350+ billion, the number was finally called for American Express.
While many businesses are struggling to stay operable, the nation’s fourth-largest credit card company, American Express was sure to feel the pinch of the economic downturn eventually. However, help is on their side with the issuance of TARP funds to the sum of $3.39 billion.
This remarkable feat was not an easy one. With Reuters reporting:
American Express had to go through a debt-for-equity swap in order to raise $1.5 billion to become a bank holding company — said that in exchange for the TARP funds they would sell preferred stock and warrants to the U.S. Treasury.
At this time, along with all the other recipients of TARP bailout funds, they are opting not to explain how they would use the money – however, Bloomberg reports that:
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.
This lays out a program for the Treasury to get a gain on their investment in bailing out American Express, but it did little to help the shareholders at the time of the announcement.
With shares falling 46 cents to $17.96 by 4:15 p.m. and an infusion of cash from the Treasury, some if not many were left scratching their heads.
Photo courtesy of Bloomberg News.