Premium credit card issuer American Express announced on Thursday, February 11th that its co-brand and merchant agreements with Costco Wholesale Corp. in U.S. stores will end in 2016 as the sides could not agree on terms for renewal of the contract.
American Express shares are getting hammered on the Costco news in trading Thursday in the New York Stock Exchange, with shares sliding around $5 to around $81, representing a nearly 6% loss for the day.
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Statement from American Express CEO
“We were unable to reach terms that would have made economic sense for our company and shareholders,” AmEx CEO Kenneth I. Chenault noted in Thursday’s statement. “Instead, we will focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”
Analysts note that AmEx has been pressured from numerous fronts to maintain partnerships as competition among banks and payment networks for co-brand deals picks up and merchants push for better terms. The firm’s business as the sole credit-card provider for Costco is worth around 15 cents per share of this year’s profit, according to consensus estimates.
More details on Costco pull out
The iconic credit card firm wasn’t willing to cut its margins to meet Costcos’s demands, so American Express management decided it was better to just take the hit and move on. Of note, the handwriting was already on the wall in that Costco already signed off on American Express and signed up with Capital One Financial Corp as its credit-card issuer in Canada earlier this year.
The statement from American Express noted the current agreement with Costco is going to end on March 31, 2016.
Of interest, Costco has 468 warehouse stores throughout the U.S. and Puerto Rico, and analysts note that its warehouses tends to attract relatively higher-income customers compared to either Wal-Mart Stores Inc or Target Corp.