Summary
This 8-K filing from American Express (AXP) primarily discusses the company's participation and results in the U.S. Treasury's Supervisory Capital Assessment Program (SCAP) and its subsequent actions related to government capital. The SCAP concluded that AXP did not need to augment its capital under a stressed economic scenario, with its Tier 1 risk-based capital ratio at 9.7% at year-end 2008, pro forma to include preferred stock issued under the Troubled Asset Relief Program (TARP). This positive SCAP outcome has allowed AXP to initiate the process of repurchasing its preferred stock and associated warrant from the Treasury. To facilitate the repurchase of government-issued preferred stock, AXP is required to raise new equity and demonstrate financial strength through unsecured debt issuance. The company launched a $500 million common stock offering and has already issued $3 billion in senior notes. This filing provides crucial insight into AXP's efforts to deleverage from government support and re-establish its independence in the wake of the 2008 financial crisis, indicating a path towards returning to a pre-TARP capital structure.
Key Highlights
- 1American Express successfully passed the U.S. Treasury's Supervisory Capital Assessment Program (SCAP) without needing to increase its capital buffer under stressed economic conditions.
- 2AXP's year-end 2008 Tier 1 risk-based capital ratio was 9.7%, which would be 13% pro forma after considering the January 2009 preferred stock issuance.
- 3The company had a year-end 2008 Tier 1 common risk-based capital ratio of 9.7%, approximately $6 billion above the SCAP benchmark.
- 4Following the positive SCAP results, AXP has requested to repurchase the preferred stock and warrant issued to the Treasury under the TARP Capital Purchase Program (CPP).
- 5AXP has met the requirement to demonstrate financial strength by issuing $3 billion in senior unsecured notes with maturities of five and ten years.
- 6The company launched a $500 million public offering of common shares to satisfy regulatory requirements before repurchasing the preferred stock.
- 7The repurchase of preferred stock is expected to have a one-time negative impact of approximately $0.18 per diluted EPS for the second quarter of 2009, but will be slightly accretive thereafter.