Originally published February 23 2005
To increase profitability, American Express is spinning off its financial advisor services
by Mike Adams, the Health Ranger, NaturalNews Editor
American Express is spinning off its American Express Financial Advisers unit into a separate company in order to focus on its core business of credit cards. With the Financial Advisors gobbling up 40% of American Express's capital while only generating 21% of the company's earnings, American Express has determined that it can do much better without its financial services arm.
AmEx Plays Its Winning Card Cutting loose Financial Advisors means higher profits from the lucrative card operations.
For the spin-off, the challenges will be greater When it spins off its brokerage and money-management unit to shareholders later this year, American Express (AXP) will become far more streamlined, living and breathing the business of plastic -- from credit cards to prepaid gift cards and renewable travelers checks.
AmEx bought the financial-planning outfit in 1984 as part of its goal to offer one-stop shopping in financial services.
Although American Express Financial Advisors -- which will get a new name after the spin-off -- has grown steadily, in recent years it hasn't come close to matching the growth or profitability of the card business.
"More companies like ours are recognizing that if you don't have focus, you're at a competitive disadvantage," Chief Executive Kenneth Chenault told BusinessWeek Online on Feb. 1, the day the deal was announced.
AmEx is still leagues behind its competitors in transaction volume, but soon after the ruling, Chenault quickly signed up MBNA (KRB) and Citigroup (C), the nation's largest credit-card issuers, which represent more than 100 million cardholders.
Losing the capital-hungry financial-planning unit should spur AmEx's profitability.
Along with generating more transaction fees for AmEx, that move should bring the added benefit of attracting more U.S. bank partners, since they get a cut of the transaction volume.
Chenault also will have the funds to develop new fee-generating services -- such as cost control and inventory management -- for corporate customers.
That's the main reason many more merchants today accept those two cards: Visa and MasterCard each boast some 5.4 million merchants in their networks, vs. 3.2 million for American Express.
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