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After the disappointing showing of American Express shares (NYSE:AXP) at the July 18 second quarter earnings report, investors were again greeted with an impressive showing after the initial dismal performance.
However, the market may have again been placed on an alert, as news came out that the credit card giant with a solid reputation for affluent customers and customer service has agreed to finally settle customers with over $112.5 million in order to resolve the prolonged but relatively non-confrontational battle with banking regulators that it engaged in illegal card practices.
The company was accused of charging unlawful late fees, misinformed customers on debt collection issues and discriminated against new account applicants on the basis of age between the periods of 2003 and 2012, according to the Consumer Financial Protection Bureau amongst other regulators.
The question that now seems to be on the lips of investors and market watchers – is how much of the share prices will this gloomy news affect?
While the share prices of the credit card giant has not responded drastically since the release of this news, several watchers have however pointed out that the reputation of the credit card giant, which makes it one of the biggest in the world, including No. 1 on J.D. Power and Associates’ annual customer-satisfaction survey for credit cards for six years running, may eventually take a decline which will also ultimately affect how much more investors will be willing to take a bet on the company’s shares.
Nevertheless, one thing that seem to be working for American express is the fact that earlier before the clamp down on the credit card giant, other financial institutions and credit card providers like Capital One Financial Corp (NYSE:COF) and Discover Financial Services (NYSE:DFS) have similarly gone through similar settlements with the US regulatory authorities.
In fact, earlier actions against Discover and Capital One was focused specifically on the sale of add on products, including payment protection and identity-theft protection, all areas that have a sizable impact on these companies product visibility and market share. American Express utilized this opportunity to discontinue the sale of its own add-on products and focus on re-strategizing on bringing out more acceptable products.
On the whole, it seems highly unlikely that the stock of American Express will be badly hit with this news, the relatively tiny amount of money involved in the entire settlement compared to the capital worth of the company seem to be a consolation for many investors, and more so, it is nothing compared to the gargantuan $2.43 billion financial settlement that was recently carried out by the Bank of America (NYSE:BAC).
If nothing, in coming weeks, the stock market may even smile on the shares of the credit card giant.
