Washington – U.S. Financial System In Critical Condition As American Express Seeks $3.5bn

Washington – American Express, the country’s fourth largest credit card company, is understood to have approached the US Government to seek $3.5 billion in funding.

According to the Wall Street Journal, the company has made an application to the Troubled Asset Relief Program (Tarp), the $700 billion rescue fund set up by the US Government to bailout the country’s flailing banking industry.

It is not clear whether American Express approached Tarp before or after it secured Federal Reserve approval to become a bank-holding company on Monday.

In September, Goldman Sachs and Morgan Stanley changed their status to become banks to allow them to access Government funds, a move that was closed off to investment banking companies.

Under its new entity, American Express can also issue bonds guaranteed by the government until June 2012.

Last month, American Express announced that it was cutting 7,000 jobs, or nearly 10 per cent of its workforce, to reduce costs by $1.8 billion, following a 24 per cent fall in third quarter profits.

In addition to the American Express job cuts, which will mostly fall on management and other positions that do not interact directly with credit card holders, the group said that it will freeze management salaries for a year and will not fill open positions. These moves are expected to save American Express about $700 million in 2009.

Much of the rest of the $1.8 billion in cost cuts will come from the reduction in the use of consulting and other professional services, lowering travel and entertainment budgets and decreasing investment in technology, marketing and business development.

The company will take a restructuring charge of between $370 million and $440 million in the fourth quarter to cover the redundancies.