GE Unit Brings AmEx Lower Charge Offs, Higher Revenues

American Express Co. is buying GE Money’s Corporate Payment Services division to lower its reliance on its U.S. consumer card segment as the division reports rising charge offs and lower profits, according to payments consultant Brian Riley.

AmEx’s write offs, or charge offs, on its U.S. consumer card segment are expected to reach 5.2 percent this year, up from 4.3 percent in 2007 and 3.7 percent in 2006, according to Riley, bank card senior analyst with TowerGroup.

In addition, pre-tax income at AmEx’s U.S. Card Services division fell to $1.8 billion in 2007 from $2.2 billion in 2006, Riley reports.

Corporate card programs typically have loss rates that are half that of consumer credit card programs and the average spend per card is higher, noted Riley.

AmEx and GE announced yesterday that AmEx would pay $1.1 billion for GE Money’s corporate card division and its $1.1 billion in receivables, 300 large corporate clients, and $14 billion in global purchase volume (“AmEx Buys GE’s Corporate Payments Group,” March 27). The deal is expected to close at the end of this month.

Riley says the deal also fits with GE’s goals. The industrial giant’s CEO Jeffrey Immelt last December said he would like to sell its U.S. card divisions, including its private label credit card division that in 2006 held $35.5 billion in receivables and generated charge volume of $63.2 billion. That division wasn’t part of yesterday’s announcement.

A GE spokesperson emailed insideARM that it made sense to sell the commercial card program as it reviewed options for the private label card group. If the private label group is sold, then “operational efficiencies between the two businesses would be lost,” according to the spokesperson.

AmEx also receives GE’s vPayment technology in the deal. VPayment processes large payment transactions while adding a unique account number to each transaction, providing strong fraud controls. AmEx generates much of its revenues from transaction fees, or the discount rate, it charges the seller in every transaction. Larger transactions mean greater discount fees.