American Express spins off financial advisory business

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AMERICAN EXPRESS will spin off its nationwide brokerage arm into a separate company potentially worth $10bn (pounds 5bn) to focus on its faster- growing card and travel business.

The move marks a radical reorganisation for the credit card giant, which is on a drive to improve profitability. It comes after a change in US law ending the control Visa and MasterCard have over the credit card market, dramatically increasing American Express' potential to sign joint ventures with banks and other financial services providers.

After the spin-off, expected to be completed in the third quarter of the year, American Express will consist of the world's largest charge and credit card business, its global travel agency and Travelers Cheque business. It also owns an international bank that serves other financial institutions, as well as private clients.

American Express Financial Advisors (AEFA), which employs 12,000 brokers across America, offers financial planning and advice services, as well as asset management, insurance, and annuities. It generated revenues of $7bn and $700m of net income in 2004, accounting for 21 per cent of the New York-based company's total net income last year. Shares in American Express surged 5 per cent in New York in morning trade.

As an independent company, AEFA will compete with Wall Street's heavyweights, such as Merril Lynch. Kenneth Chenault, the chief executive of American Express, said the move would better enable the advisory business to respond rapidly to market trends. "As an independent company, AEFA would not have to compete for capital or management resources with other American Express businesses, and therefore would be able to react more quickly to market opportunities for new products, partnerships and expansion," he said.

Under the plan, investors in the parent company will receive shares in the advisory business. Warren Buffett, the chief executive of Berkshire Hathaway, is the biggest shareholder in American Express.

James Cracchiolo, 46, the brokerage unit's chief executive and president, will become chief executive of the spun-off company. The two companies will be independent, have separate public ownership, boards of directors and management. They will form exclusive marketing affiliations that will allow AEFA to continue to use the American Express name for a transition period after the spin-off.