American Express Exits the Money Management Business
- Feb 04, 2005
- admin
- Investing
LET ME TAKE YOU BEHIND THE SCENES FOR A MOMENT.
You are no longer just an individual investor.
You are now the Chairman and CEO of American Express (SYM: AXP),
one of the largest financial services companies in the world.
Your company brings in close to $30 billion a year in
sales and earns $3.4 Billion a year in profit.
Your divisions compete agressively against some of the toughest
institutions on the planet.
One of them – your bread and butter business – is to offer people
charge cards that they pay off every month.
That business generates 75 percent of your annual sales and 80
percent of your annual profit.
But more importantly, this business generates a return on equity
of 30 percent annually.
That means that for every $1,000 you invest into it you
earn $300 back.
The other big business you own sells people financial
products and services.
It generates $7 billion per year in sales and earns close to
$700 million in profits.
And while $700 million in profits is nothing to sneeze at there’s
something that’s been troubling you.
Something that you know you’ll have to deal with sooner or later.
It’s the realization that the financial services industry has
long been changing.
The companies that dominate the industry today look much different
than those that dominated in the 80’s when you entered the business.
It’s now dominated by financial behemoths such as Citigroup (SYM: C),
JP Morgan Chase (SYM: JPM), and Fidelity.
Their scale alone has made the competition fierce.
So fierce in fact that prices for the services have dropped
dramatically.
So dramatically that your return-on-equity has dropped from
20 percent to 15 percent.
That means that for every $1,000 you invest into the business
you only get back $150.
But that’s not all.
To compete against the biggest of the industry you’re going to
have to get much bigger.
So big that you’ll have to transform your company.
Double down.
Become a player.
Either way, you’re going to have to invest heavily into
building your business.
And that’s gonna cost money.
More money than the business can generate on its own.
That means that you’ll have to invest money from your
bread-and-butter business into your financial services
business to grow it.
That means you’ll have to invest the money from the
business with a 30 percent return on equity into
the business the one with the 15 percent return on equity.
That means that for every $1,000 you spend on your business,
instead of earning $300, you earn $150.
When you’re talking billions of dollars that’s serious money.
So serious that you’re thinking about spinning off $700 million
in annual profit.
So serious that you’re willing to shrink the size of your company
by 25 percent.
So, Mr. Chairman and CEO of American Express – now that you have
all the facts…
WHAT DO YOU DO?
Well, if you’re a regular reader of the Tycoon Report you
would know what to do.
You’d eliminate the low-returning business from your portfolio
and reinvest the money into the high-returning companies.
That’s why the stock of Amex rose sharply in heavy trading
this week.
And that’s why you should be thinking long and hard about
what Kenneth Chenault was thinking about yesterday.
That’s because just like the CEO of Amex you own a portfolio
of stocks.
But they’re really a portfolio of businesses.
Most of them get returns on equity that are just average.
But some of them get returns on equity that are well above average.
Subscribers to the Tycoon Report know what I’m talking about
because they own the ones that the CEO of Amex would like.
Companies with returns on equity well above average.
Companies that know how to invest their money.
Timberland has a return on equity of over 30 percent.
That’s why the stock is up 25 percent from our recommended price.
K-Swiss has a return on equity of over 30 percent.
That’s why the stock is up 60 percent from our recommended price.
But that’s not the best part.
The best part is that we have more coming.
Much more.
Companies that have high returns on equity and are
selling at discounted prices.
Companies that are stronger than average.
Companies you should own in your portfolio.
To find out what they are, visit us here and try the Tycoon
Report risk free for 30-days:
http://www.tycoonresearch.com/order_page.asp
Remember, you are what you read.
–Dylan Jovine