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Who Would Bid for American Express?

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Updated

Succession issue

The succession of American Express (AXP) CEO Kenneth Chenault has fueled speculation that the company’s board might consider an outright sale option—AXP’s officials have denied that the company is not for a sale. Wells Fargo & Company (WFC) seems less likely to put capital on a falling brand like AXP’s, unless Berkshire Hathaway’s (BRK-B) Warren Buffett has a different perspective and backs up a takeover. But there are other major banks that could be looking to expand their credit card offerings by considering a buyout of the company.

In 4Q15, American Express posted net income of $899 million compared to $1.4 billion in 3Q15. The company saw a $419 million pretax charge in 4Q15, which included impairment of goodwill and technology assets, in addition to restructuring costs within the Enterprise Growth Group.

Meanwhile, the company’s total revenue net of interest expense fell by 8% to $8.4 billion in 4Q15, compared to $9.1 billion in 4Q14. Notably, payment processing companies make up 2.3% of the Technology Select Sector SPDR ETF (XLK).

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US Card Services segment

American Express’s major revenue is derived from US Card Services. The segment saw total revenues net of interest expenses increase by 6% to $4.8 billion in the fourth quarter. This made up 58% of the company’s total revenues, compared to $4.6 billion in 4Q14. This expansion was mainly due to higher net interest income from growth in the loan portfolio as well as to an increase in its card member spending. The division’s net income also rose by 20% to $799 million, compared to $665 million in 4Q14. The division’s profitability rose due to flat expenditures, partially offset by higher provisions.

In 4Q15, the division’s net income also rose by 20% to $799 million, compared to $665 million in 4Q14. The division’s profitability rose due to flat expenditures, partially offset by higher provisions.

Efforts on partnerships

American Express has increased spending in order to initiate up new partnerships. The company was successful in forming partnerships with Charles Schwab (SCHW), one of biggest brokers in the United States, and Sam’s Club, the eighth-largest retailer in the United States. The company’s expenses also increased due to spending on technology development, marketing and promotion, and higher service costs due to new partnerships.

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