AmEx Is a Bank, But Won't Act Like One

According to presentation materials for the Merrill Lynch financial services conference, at which Discover executives presented on Tuesday, deposits represent 47% of the company's funding mix as of Aug. 31. Term asset-backed securities represented 41% of their funding needs at the end of August, the slides said.

American Express, Capital One and Discover are different than Visa (V Quote) and MasterCard (MA Quote), which are simply payment networks and do not hold loans on their books. Therefore Visa and MasterCard are not susceptible to loan losses nor are they concerned with funding sources.

The Fed's approval for American Express was similar to the decision it made in September to transform the country's two biggest investment banks, Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote), into bank holding companies.

American Express has seen the value of its primary assets decline as more consumers have had trouble paying their bills. That's made it harder for the company to borrow to pay for daily operations.

The company revealed severe financial troubles late last month, when it laid off about 7,000 people, or 10% of its global workforce, and said it did not expect to meet its targets until the economic climate improved.

American Express last month reported that its profit fell 24% in the third quarter as cardholders restrained their spending and had more trouble paying off debt.

In its quarterly filing with the Securities and Exchange Commission on Oct. 31, the company said it expected write-offs in its credit card portfolio to continue to increase in the fourth quarter and into next year.

"Funding however was not our primary concern with American Express, consumer credit losses have been," writes Oppenheimer analyst Meredith Whitney. "Our concerns for American Express and other consumer lending-related stocks continue to be worse than expected credit losses."