American Express will cut 7,000 jobs

(AP) - In a stark acknowledgment of the tough times ahead in the credit card industry, American Express Co. said Thursday that it plans to cut 7,000 jobs, or about 10% of its worldwide work force, in an effort to slash costs by $1.8 billion in 2009.

The Manhattan-based credit card issuer said it is also suspending management level salary increases next year and instituting a hiring freeze.

The job cuts will be across various business units, but will primarily focus on management positions, the company said.

Additionally, American Express said it plans to scale back investments in technology and marketing and business development, and streamline costs associated with some rewards programs. The company also expects to cut expenses for consulting and other professional services, travel and entertainment and general overhead.

As a result, American Express plans to take a restructuring charge of between $240 million and $290 million in the fourth quarter.

The company has been gearing up for a big restructuring for some time, first announcing in July that it planned to reduce overall costs and staffing levels, and take a related charge during the second half of the year.

"We've been engaged for the past few months in an intensive, companywide review of priorities and staffing levels," said Kenneth Chenault, chairman and chief executive, in a statement. "The re-engineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades. It will also put us in position to ramp up investment spending as economic conditions improve so that we can take advantage of the substantial opportunities that will be available to us over the medium to long term."

Last week, American Express reported a better-than-expected 24% decline in third-quarter profit. But the report echoed recent results from J.P. Morgan Chase & Co., Citigroup Inc. and Capital One Financial Corp. showing that the credit card environment is worsening as cardholders have trouble paying off debt and pull back their spending.

Even a company like American Express, which prides itself on catering to a more well-heeled clientele, is not immune.

The company's customers tend to be more affluent than those of other card companies, but they are more heavily concentrated in California and Florida, where the slumping housing market is taking a toll. American Express also has a higher percentage of small-business customers, and small businesses tend to miss payments more than individuals, executives have said.

"Cardmember spending is likely to remain soft," Mr. Chenault said in a statement last week. "Loan growth will be restrained, in part because of the steps we are taking to reduce credit risks, and credit indicators are likely to reflect the continued downturn in the economy and throughout the housing sector."

American Express has been able to finance its operations amid the tight credit markets, but the efforts have been tougher and more costly.

Shares rose $1.23, or 4.9%, to $26.44 in morning trading. Shares have traded between $20.50 and $61.55 in the past 12 months.

©Copyright 2008 Associated Press.

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Bank of America Sues Bear Stearns Execs

Zach Lowe
The American Lawyer

Ralph Cioffi and Matt Tannin have become household names in the Am Law 100 world since June, after the feds indicted them for fraud for allegedly lying to investors about the state of two Bear Stearns hedge funds that collapsed in June 2007.

The case has now spilled into civil court, with Bank of America filing suit Wednesday against Cioffi, Tannin and a third Bear Stearns exec for hiding the funds' poor health in order to the draw the bank into a complicated $4 billion transaction in which mortgage-backed securities controlled by the funds were pooled to support the sale of other securities.

The bank has retained Robbins, Russell, Englert, Orseck, Untereiner & Sauber for the suit, which was filed Wednesday in federal court in Manhattan. Name partner Lawrence Robbins signed the complaint.

The complaint repeats many of the allegations against Cioffi already outlined by prosecutors and the SEC, including this gem: Cioffi allegedly told a Bear Stearns economist in March 2007, "Don't talk about [the funds' February results] to anyone or I'll shoot you."

Such messages, the complaint says, continued internally throughout the spring, including in a May 26 e-mail in which Tannin warned that the funds were "in danger of a wipe out." It was then that Bank of America was agreeing to take on about $2.9 billion collateral to finance the $4 billion securitization, the complaint says. That collateral became worthless when the funds collapsed in June.

One note of interest: the third ex-Bear Stearns executive named in the complaint, Raymond McGarrigal, now works at JPMorgan Chase.

This article first appeared on The Am Law Daily blog on AmericanLawyer.com.

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IRS wrongly paid out $1 billion in 2007 refunds

WASHINGTON - The government sent out more than $1 billion in fraudulent refunds last year and offered this explanation Thursday for the bad checks in the mail: The Internal Revenue Service has too few resources to pursue every tax fraud case.

IRS investigators never even looked at an estimated $742 million in fraudulent refunds, according to a report by the Treasury Department office that monitors the agency. When they did identify an additional $264 million in bad refunds, it was too late to stop them from being issued.

The report noted that the IRS must divide its limited resources among numerous areas of compliance. "However, this is a significant revenue loss to the federal government and that must be addressed," said J. Russell George, the Treasury's inspector general for tax administration.

The number of improper refunds filed appears to be growing rapidly, the report said. "The problem is becoming unmanageable, and the IRS cannot afford to continue handling it in the same manner as in the past," according to the report. It urged the tax agency to make the refund screening program — known as the Questionable Refund Program — a priority.

The IRS has estimated that the tax gap — the difference between taxes owed and taxes actually paid — at about $290 billion a year. Of that, about 57 percent comes from individuals understating incomes or overstating deductions and exemptions.

IRS spokesman Terry Lemons said the agency has made significant improvements over the past two years. "We stop the vast majority of fraudulent refunds and we prosecute people who try to cheat the system," Lemons said.

George's report recommended the IRS divert resources to go after such fraud cases. But Lemons said that could hurt other operations and mean fewer dollars from enforcement activities.

Lemons said the agency issued more than $470 billion in refunds in 2006 and 2007.

The report said the IRS fraud detection centers stopped more than $1.2 billion in fraudulent refunds in 2007, compared with $412 million in 2005, the last year the detection system fully functioned.

Because the system picks up only those refunds with higher dollar values, about 500,000 potentially fraudulent refunds did not enter the centers' screening process. Had those refunds been included, the centers would have identified an additional $742 million in fraud, the report estimated.

In 2006, because of a technical problem in the fraud detection system, the IRS succeeded in identifying and stopping only $189 million in fraudulent refunds while paying out an estimated $894 million, the report said.

The Treasury's inspector general, in a separate report Thursday, lauded the IRS for what it said was a "generally successful" 2008 filing season during which returns and refunds were processed in a timely fashion.

This report said the IRS did a good job in overcoming several obstacles, including changes involving the alternative minimum tax. The agency was also responsible for sending out checks to more than 130 million people as part of the economic aid plan signed into law in February.

Copyright 2008 The Associated Press.

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