American Express (NYSE:AXP) illustrates the negative supply consequences of easy monetary policy. Zero -percent interest rates have generally compressed banks’ net interest margins, but not in the consumer credit card business, where margins have remained wide. This has become an especially bright spot in the financial sector, and banks have committed more capital to credit cards. As a result, American Express has faced a period of heightened competition, which has put pressure on its stock. We believe American Express has remained a very well-entrenched franchise, and in a world where many banks are earning single-digit return on equity (ROE), American Express has earned a 25% ROE.2 Its balance sheet is solid by comparison, and it has been able to buy back stock rather than needing to issue stock. We have remained committed to American Express, but we acknowledge that its environment has become somewhat more challenging.
From First Eagle's Global Value Fund first quarter 2016 commentary.
