What’s Next For Amex? Reactions From Around The Street

Unless you’ve been living under a payments rock for the past few years, it’s no secret that American Express has had its fair share of misery.

That misery meter may have come close to pinning yesterday (March 8) based on a Fox Business report that Amex CEO Ken Chenault may be on the way out as a result of rising tensions with his board of directors.

Interesting for many reasons, not the least of which is that Warren Buffett is one of the firm’s largest shareholders. And he has publicly stood behind Chenault — even in his darkest days — and has held great sway with the board for that reason. It’s one of the reasons that activist investor ValueAct reportedly bailed. It couldn’t penetrate that impenetrable force and get proposals fielded that might right the Amex ship.

The rumor of Chenault’s demise is all speculation based on the famous “unnamed people at Amex” but speculation that comes with a company that’s seen its stock dip more than 25 percent in the past year, its market cap lose close to 50 percent of its value over the same period and now has to shave $1 billion in cost from its operations.

Or, to play back Chenault’s words: “Transform the way the company works.”

Now, with rumors swirling around the mainstream financial press, could that transformation also mean a new leader? Or perhaps a new suitor for Amex? One thrown out on the table was Wells Fargo (eyeing the credit card business), but an Amex spokesperson has reportedly denied such claims, saying the company “is not for sale.” Wells Fargo hasn’t publicly commented on the matter. Not that either of them would.

But the outspoken financial pundits from TheStreet, Jim Cramer and Jack Mohr, certainly did. And they suggested that the speculation was simply noise. They also made a claim that, even if Wells Fargo was in the bid for Amex, it doesn’t need to be.

Still, that doesn’t mean they had much in favor of Amex to say.

“Wells Fargo is a high-quality, well-managed, large-cap, diversified — yet domestic — bank that has numerous levers to pull in order to drive earnings growth amid the difficult backdrop weighing on global bank revenues. The question is not whether it has dry powder at its disposal (it does), but which form of capital deployment maximizes shareholder value,” Cramer and Mohr were quoted as saying on Tuesday afternoon.

“We see little value in wasting the capital on a bloated franchise with an eroding customer base,” Cramer and Mohr noted in their response to the Amex-Wells Fargo speculation.

Ouch. Except that they are missing a pretty big point. Amex has a bunch of very valuable assets, like its corporate travel and B2B network, that makes it an attractive target for someone. When news of the Amex unraveling was at full tilt last year, MPD CEO Karen Webster wrote that the future of Amex might be to break it up and double down on the B2B potential. That was when its market cap was in the $70 billion dollar range. Yesterday, the Amex market cap was at $58 billion.

As for the future of Amex? Analysts weren’t so bullish. And they weren’t so confident on the speculation.

“The competitive landscape has shifted; issuers and networks alike are increasingly willing to invest heavily in customer acquisitions (via generous rewards programs and sign-up offers) — despite the low rates of return — which weighs heavily on Amex’s ability to compete while preserving returns,” Mohr wrote in a report.

Moreover, he recognized Chenault’s dire need to turn things around but said Amex and its leader are likely to end up on the “wrong end of the negotiating table” when it comes to any merger or acquisition talks.

Ya think?

And the conclusion among analysts’ reports suggests that if (or perhaps when) a bid does come in for the payments network, it certainly won’t be from Wells Fargo.

“Unfortunately, we still don’t see any easy answers and, increasingly, see M&A as the most effective solution to improve AXP’s top-line outlook. With management most likely to again highlight organic growth opportunities, we are not optimistic AXP will be able to materially improve sentiment,” Analyst Christopher Brendler wrote in a note.

Or as two more analysts wrote…

“While the loss of Costco will pressure the firm’s growth prospects in 2016–2017, we estimate roughly $2 billion of excess capital could be generated by the portfolio sale, which AXP intends to incorporate into its 2016 Comprehensive Capital Analysis and Review submission,” Wells Fargo Analysts Jason Harbes and Matthew Burnell said in a recent report. “Additionally, we believe AXP is more interested in making an acquisition over the next two years than it has been in recent years, although we sense a bolt-on acquisition, such as Loyalty Partner (acquired in 2011 for $0.6 billion), that offered potential synergies would be of greater interest than a large transformational deal.”

Interestingly enough, the rumors and speculation that flooded the early week’s reports had an impact on Amex that kept people talking into the next day.

But even rumors had their impact on Amex’s stock after the news hit, sending its stock up 1.2 percent in post-trading hours, which, for this company, was a mini victory in light of the past year’s slump. Its stock remained up Tuesday, closing just above $59.

Still, that’s a far cry from what it was a year ago. But, as MPD CEO Karen Webster pointed out in a column earlier this year, Amex has a history of reinventing itself over its 166-year history.

Yet, as she highlighted, it’s been over two-and-a-half decades, and Amex finds itself in the same position it did when Lou Gerstner reinvigorated the brand in the mid-70s. This may need a “turnaround artist to execute it,” Webster noted.

Which seems to be the attitude of the board, if the reports being circulated are accurate.

Amid the pile of criticism on the payment network, though, Canuck Investments led the news cycle with a piece suggesting that Amex’s “terrific valuation and great long-term prospects could make this a great long-term pick.”

Fully acknowledging Amex’s struggles of the past two years, the investment group believes Amex can be a “competitive force in the next few years.” But how?

“Amex currently is creating a digital enterprise division, which specializes in mobile, Web and digital products. This is promising news,” the group wrote.

It has a lot of ground to make up. Amex seems to have missed the boat on mobile payments, as its strategy has been “largely nowhere,” Webster also pointed out. And Apple Pay as its savior might not be the best lifeboat to crawl into.

Canuck also spoke highly of the management team.

“Amex has great management, and if you’re a long-term investor with at least a five-year investment horizon, then Amex presents an incredible value play that contrarian investors should capitalize on.”

Yep, since in five years, it will likely be a brand owned by someone else who’s turned it around.

And, amid all the criticism, recent SEC filings from hedge funds and investment analyst groups showed that there actually were many companies increasing their shares of American Express during the fourth quarter. (Perhaps hoping for that outcome as well.)

All of this comes on the heels of the news last week that Amex has officially begun the sale of its Costco co-brand deal – making the way for $1 billion in the bank, at least.

Amex lost that 16-year relationship with Costco, which has opted instead to partner with Visa and Citibank. Among other companies that have jumped ship from Amex is JetBlue, which is now partnering with Barclays and MasterCard. Starwood Hotels was bought by Marriott, which has a partnership in place with Chase, so that relationship with Amex may conceivably be severed, too.

And all of that has a lot of analysts and payments pundits wondering: What’s next for Amex?

But, more importantly: What’s next for Amex’s leadership?

It may not be long until we find out the score on both.