The American Express Co. AXP is likely to get a breather from the Senate’s recent decision to bring in a few amendments to the Dodd-Frank Act. Regulations and policies extensively control the company, TRS and its U.S. bank subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank).
The Dodd-Frank Reform was put in place by President Obama in 2010 to prevent the reccurrence of the 2008 financial crisis.
Amendment to the Act
One of the main tenet of the Senate’s banking bill is to raise the minimum threshold bar for institutions that are deemed too big to fail to $250 billion from $50 billion. This change would bring a relive to the small institutions and will result in a reduction in the number of banking institutions considered “too big to fail.†Further, it frees banks with less than $10 billion total assets from the Volcker rule. This rule was made to prevent banks from placing bets with their own money.
Some of the beneficiaries of change are BB&T Corporation BBT, Fifth Third Bancorp FITB, SunTrust Banks, Inc. STI among others.
American Express to Gain from the Move
If the proposed changes see the light of the day, American Express will no longer have to undergo the annual stress test conducted by the Federal Reserve. These tests are designed to evaluate whether the company in question has sufficient capital on a total consolidated basis to recuperate losses and support operations under adverse economic conditions.
The company is now required to maintain capital ratios appreciably above the applicable minimum requirements and buffers. It is also restricted in its ability to make any capital distributions (including dividend and share buy backs). A relaxation of this rule will provide the company increased financial flexibility and greater autonomy in capital allocation.
We believe the company will be able to divert buffer capital for business expansion and enhance products.
