If, as some economists are saying, the economic downturn is going to hurt consumer spending more than business spending then American Express is making a good defensive move. AmEx is paying $1.1 billion for a General Electric unit that processes charge cards for corporations.
American Express suffered a hit on its recent profits because of the more than$1 billion it set aside for loans that consumers made on their AmEx cards that may not come through. The purchase of GE’s Corporate Payment Services unit also follows last month’s sale of AmEx’s international banking subsidiary. AmEx says both moves are part of its strategy to focus more on the payments sector.
The GE unit was formed 16 years ago to handle GE’s business and entertainment cards as well as purchasing cards for its employees. But it’s grown to serve more than 300 other companies, with GE still its biggest. The unit generated more than $14 billion in global purchase volume last year after seeing its billed business grow at a compounded rate of 18 percent over the last five years.
An AmEx official noted that the corporate clients of the unit it’s buying have good credit, and that accounts are paid in full each month, rather than through a revolving credit account.
