The American Express death rattle

That sound you just heard is the collective intake of breath from the remaining 57,000 or so employees of American Express as they brace for more bad news. Bloomberg News broke the news this week that a Federal Judge ruled AmEx had violated anti-trust laws by enforcing "non-descrimination" rules at the point-of-sale, which prevent the issuer's merchant partners from asking their customers to use another card. AmEx charges merchants higher interchange fees  than do MasterCard and Visa, which the issuer uses to fund its rich Membership Rewards loyalty program.  According to Bloomberg's Christie Smythe, US District Judge Nicholas Garaufis in Brooklyn ruled:

The company has “the power to repeatedly and profitably raise” its merchant prices “without worrying about significant merchant attrition,” Garaufis said. “The result is an absence of price competition among American Express and its rival networks...” The rules have also “foreclosed the possibility of a current network or new entrant” differentiating itself by imposing lower fees, he said.

Garaufis has yet to decide on proposed remedies, which could include forcing AmEx to drop its non-discrimination clause, lower their interchange fees, or both. This news comes after retail behemoth Costco announced earlier this month that it would end its exclusive card partnership with AmEx in March, 2016, news which came fast on the heels of the issuer also losing its co-branding partnership with airline JetBlue, which was proceeded by news that AmEx would lay off 4,000 employees this year. 

This deluge of bad news has convinced some analysts that AmEx's best days are behind it. Business Insider's Shane Ferro, for example, is calling for consumers to cut up their Amex cards. Money quote:

This lawsuit means restaurants and shops are free to ask customers to use other credit cards (this is in addition to the many that already refuse to accept AmEx). That will put pressure on AmEx to lower its fees to be more competitive with Visa and Mastercard. Lower fees most likely mean fewer rewards for consumers, and, for American Express card members, potentially higher annual fees. 

So if rewards got you to sign up for an AmEx, you might as well apply for that Visa card today. 

As a result of this series of body blows, AmEx's stock price has taken a tumble. Still, rumors of the issuer's death are no doubt greatly exaggerated. Most analysts have failed to note that AmEx has moved heavily into the coalition loyalty program space, purchasing the Germany-based Payback coalition program and then expanding the program to Poland, India, Italy, and Mexico. The company is rumored to be pursuing coalition loyalty programs in other countries as well. Far from reducing its stake in reward programs, AmEx appears to be doubling down on them. With millions of members earning a common currency among multiple sponsor brands, coalition loyalty programs represent a potentially lucrative base of consumer cardholders.

If I was a betting man-- and I am-- I'd bet that AmEx gets a slap on the wrist that requires it to drop its non-discrimination policy and modestly reduce interchange fees, revenue that the issuer will swiftly replace with modestly higher annual fees. Higher fees may cost Amex a few cardholders, but the issuer's affluent cardholder base will mostly absorb the cost in exchange for those rich rewards. And while I'm not a financial adviser, if Amex's stock price tanks any further, I advise you to buy low.