American Express already was reeling from the loss of its
lucrative co-branding partnership with Costco when in late March Marriott won
the bidding war for Starwood, another of Amex’s valued co-branding partners.
It wasn’t good news.
Should Marriott terminate Starwood's relationship with Amex in
favor of Marriott's co-branded program with JPMorgan Chase, Amex stands to lose
its second largest co-branded partnership after Delta. Amex's Starwood
portfolio of cards is worth 2 percent of Amex's 2015 billed business and 4
percent of 2015 loans.
In an email to Starwood preferred guests on April 9, CEO
Thomas Mangas and senior vice president of preferred guest Chris Holdren said
Starwood didn't expect to launch a combined card program until 2018. "This
means SPG will continue to run separately until then."
The Starwood portfolio is not as large as the Costco
portfolio, which represented about 8 percent of Amex's 2015 billed business and
19 percent of loans. But Starwood is "meaningful enough to hurt given
other challenges faced by [Amex]," including its ongoing
trial with the U.S. Department of Justice, according to a research note by
RBC Capital Markets analyst Jason Arnold.
Fitch Ratings downgraded Amex's outlook on April 6 from
stable to negative, reflecting "increased execution risk as the company
engages in strategic initiatives aimed at addressing the challenges related to
its profitability and business model." It also downgraded Amex's long-term
issuer default rating from A+ to A.
The strategic initiatives to which Fitch referred included a
plan to slash $1 billion in expenses through 2017, as well as a pay cut for CEO
Ken Chenault for not meeting goals for earnings per share, billed business
growth and return on equity.
Corporate Card Support
Despite a disappointing
performance for Amex's corporate card billings in the fourth quarter and
full-year 2015, Fitch noted that Amex still offers a leading position in the
corporate payments industry, a strong brand and ample liquidity.
That said, the effects of the Marriott-Starwood merger "can't
be disconnected" from Amex's corporate card business, said GoldSpring
Consulting partner Neil Hammond, who added that Amex will not want to lose the
Starwood portfolio. "They're going to have to make it up somewhere along
the line, or else it will impact that business and the decisions they have to
make, whether leisure or corporate."
In the meantime, though, Amex's strong corporate
card business will serve as a source of dependable transactions and revenue for
the company's wounded profit margins. "If [American Express] is the card
you’re required to use, then you’re going to have to use that card," Hammond
said.