Kenneth Chenault’s Crisis Years

Kenneth Chenault’s Crisis Years

It is sure to come up: What did Kenneth I. Chenault do during the bailouts?

The White House is said to be considering Mr. Chenault, the chief executive of American Express, for a post in President Obama’s cabinet, according to Bloomberg News. The article mentions that the executive could be in the running for the Treasury Secretary and Commerce Secretary.

If an offer from the White House materializes and Mr. Chenault accepts it, the actions of American Express during the 2008 financial crisis will no doubt be closely examined.

So how might Mr. Chenault’s actions be assessed? Pretty favorably, actually.

As with many other banks, the government took an equity stake in American Express under the Troubled Assets Relief Program. While it received $ 3.4 billion under the program in January 2009, the company paid the money back six months later.

American Express participated in other types of bailouts, but, again, its participation was small compared to others. In one particularly advantageous program, the government guaranteed the bonds that financial companies issued. American Express tapped the program briefly at the end of 2008, raising $ 5.9 billion. That’s nothing compared to General Electric’s financial arm, which issued over $ 50 billion of the guaranteed debt, and used the program for many months.

Then there was the alphabet soup of bailouts provided by the Federal Reserve. American Express participated in two of these. Under one of the programs, the Federal Reserve set up a special fund to buy short-term corporate debt called commercial paper. It bought $ 4.5 billion of American Express, far less than the $ 16 billion sold by General Electric’s financial arm.

American Express’s name also pops up on a Fed facility that gave loans to investors to buy bonds backed by things like loan repayments. The facility financed the purchase of $ 1.1 billion of bonds backed by American Express credit card loans. Almost nothing in the scheme of things.

But something happened in the heat of the crisis that might make Mr. Chenault vulnerable. In the midst of the 2008 panic, the Fed allowed American Express to become a bank holding company, a status that allowed the credit card lender to fully participate in government bailouts.

Before the shift, American Express was part of the shadow banking system, the name given to financial companies that weren’t regulated like banks. The Fed cited “exigent and unusual circumstances” in approving American Express’s transition.

One of American Express’s weak spots going into the crisis was that it was overly dependent on potentially skittish short-term market borrowings to fund its business. When American Express became a bank holding company, Mr. Chenault acknowledged the need to change, saying, “We will continue to build a larger deposit base to broaden our funding sources.” Deposits are considered less flighty than short-term market borrowing.

American Express appears to have delivered on that. It has $ 37 billion of customer deposits today, versus $ 12 billion in 2008.

His detractors may find fodder for criticism elsewhere, like his compensation. In 2009, 2010 and 2011 combined he made a total of $ 57 million.


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