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American Express (AXP)
American Express to Spin Off Financial Advisory Business
American Express, the financial services giant, said today that it plans to spin off its financial advisory business in a tax-free distribution to its shareholders. The company said its shareholders would get 100 percent of the common shares of the new company which would be known as American Express Financial. The spinoff is expected to be completed in the third quarter of this year. The two companies will be independent, have separate public ownership, boards of directors and management. The spinoff business will continue to be led by James Cracchiolo as chairman and chief executive.
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“This spinoff will create two distinct businesses and allow them to capitalize on their respective growth opportunities," Kenneth Chenault, chairman and chief executive of American Express, said in a statement. The financial advisory business provides financial planning and advice, asset management, insurance, annuities and related businesses through a network of more than 12,500 advisors serving more than 2.5 million clients, as well as $410 billion in assets and more than $145 billion of life insurance in force. It generated revenue of about $7 billion and earned about $700 million in 2004. After the spinoff, American Express will consist of a charge and credit card business and a network that processes more than $400 billion in transactions from merchants throughout the world. It will also operate global travel and Travelers Cheque businesses and an international bank. Those businesses delivered approximately $22 billion in revenue and net income of $2.7 billion in 2004. Access live audio of the conference call discussing spin-off plans by clicking here
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Following the spin-off, American Express plans to raise its return on equity target from 18-20 percent to 28-30 percent. Chenault said American Express will maintain its 48 cents a share annual dividend and payout target of 65%, which includes stock repurchases and dividends. Seeing the financial advisory business as a drag on the company, Wall Street greeted the move by bidding up the company's share price on expectations for a higher returns looking ahead. "It reflects a focus on the higher growth and return card payments businesses versus relatively slow growth, lower return insurance and asset management," Prudential said reiterating its "overweight" rating on American Express. American Express earlier had reported better than expected fourth-quarter earnings that had shot up almost 18% over last year, primarily boosted by balanced growth in the company's charge card and travel services divisions.
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American Express surged 5.72 percent, or $3.05, to $56.4 in mid-morning trading on the New York Stock Exchange and was among the most actively traded issues.
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Profile |
American Express Company is primarily engaged in the business of providing travel related services, financial advisory services and international banking services throughout the world. American Express Travel Related Services Company, Inc. provides a variety of products and services, including, global network services, the American Express Card, the Optima Card and other consumer and corporate lending products, stored value products, and several others.
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