Fed OKs American Express as bank holding company

By Juan Lagorio and Patrick Rucker

NEW YORK/WASHINGTON (Reuters) - American Express Co (AXP.N) said it won approval to become a bank holding company, in a step that could cut its borrowing costs and give it more access to government money.

American Express, the fourth-largest U.S. credit card issuer, offered more credit to more customers even as the housing crisis began last year, and is paying the price as delinquencies rise.

Adding to its difficulties, its main sources of funding have grown more expensive as secured and unsecured bond markets have shut down.

Investors are wondering whether financial companies that loan money but fund themselves mainly in the bond markets are a thing of the past. Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) both became banks in September.

As a bank holding company, American Express can issue bonds that are government guaranteed through the end of June 2012, and apply to receive money under the U.S. Treasury's $700 billion (448 billion pounds) Troubled Assets Relief Program, which is making direct investments in banks, insurers, and possibly other financial companies.

The company will also find it easier to buy banks now, and take deposits from consumers and companies, which can be a cheap source of funding.

"Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced ... to support U.S. financial institutions," said Kenneth Chenault, chairman and chief executive officer of American Express, in a statement.

"With Federal Reserve oversight we should gain greater access to the capital on offer," he added.