American Express to buy GE unit

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Friday , March 28, 2008 at 0928 hrs American Express Co said on Thursday it would acquire Corporate Payment Services, a commercial credit card and corporate purchasing business from General Electric Co for $1.1 billion.

The acquisition will cut into American Express earnings per share and return on equity for several years after the transaction, assuming cash used for the purchase would have otherwise been used for buying back shares.

But the acquisition makes strategic sense for American Express, which is looking to bulk up its corporate payments business and reduce its reliance on consumer credit card lending.

Reducing reliance on consumers is increasingly important as the U.S. economy slows. A government report on Thursday said the economy grew at a meager 0.6 percent annual rate in the fourth quarter.

American Express said in January that customer spending slowed in December, a trend it expects to continue. The company also said it was building reserves as expected credit losses rise.

The Corporate Payment Services business has more than 300 large clients, which tend to pay off their balances in full at the end of each month. The largest customer is GE, which agreed to become a client of American Express for several years.

GE is selling the business as a step to prepare for the company's planned exit from the private-label credit card business, a spokesman said. GE executives said in December they intended to possibly sell off $30 billion to $50 billion of assets related to that business.

While that deal has not yet occurred, a sale would take away some of the benefits of scale of the commercial credit card and purchasing businesses, said GE spokesman Rob Rendine.

In a separate deal, GE said on Thursday it had reached a preliminary agreement to swap businesses with Spain's Santander SA. Santander will acquire GE Money's businesses in Germany, Finland and Austria, and its card and auto businesses in Britain. GE Commercial Finance will acquire Interbanca, which Santander picked up in a three-way break-up bid for ABN AMRO last year.

American Express shares were lower in late afternoon trading, down 47 cents at $44.89. GE shares were down 23 cents at $36.90 on the New York Stock Exchange.

EXPOSURE TO DOWNTURN