In a decision that says everything about the still fraught state of financial markets, the US Federal Reserve has approved card giant, American Express becoming a bank.

The move came after the bailout of AIG, the big insurer, was boosted to $USS150 billion and mortgage giants, Fannie Mae revealed huge losses totalling $US29 billion.

AIG also said it lost $US24.5 billion in the September quarter as well.

In a statement issued well after markets had closed, the Fed said that it had approved Amex’s full status as a bank holding company.

That’s similar to moves made in September by Goldman Sachs and Morgan Stanley to become bank holding companies, which would enable them to access the loans on offer from the Fed for banks and to deal on a more cost efficient basis.

It’s a sign that Amex has been finding it tougher to finance its credit card business in an open market, without the implied support of the Fed behind it. Amex has been losing billions of dollars this year in credit loan losses and in defaults on cards and other forms of credit.

The Fed said that both American Express Company and its affiliate American Express Travel Related Services would be allowed to form bank holding companies, as the Amex group converts its Salt Lake City, Utah-based American Express Centurion Bank into a full bank.

“In light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the (Federal Reserve) Board has determined that emergency conditions exist that justify expeditious action on this proposal,” the Fed said in the statement.

The move came hours after the Fed confirmed that it had restructured its $US123 billion in total bailout and assistance package for the troubled giant insurer, AIG.

The upshot of the restructure is that the funding package for AIG is boosted to a massive $US150 billion from the original $US85 billion (and a $US38 billion loan deal).

The increase is likely to generate more criticism of the pace of the bailouts ahead of a decision by the US Government on aid to the teetering domestic car business. The Fed found another $US27 billion for AIG: there are suggestions the Big Three US car companies have asked for a combined loan of $US25 billion.

At the same time the country’s second largest electrical retailer, Circuit City went broke and moved into bankruptcy to restructure and DHL, the big German-owned parcels and freight group stopped operating in the US domestic market and sacked 9,500 people, on top of more sacked last week. US reports put the total at more than 14,000.

America’s slumping retail sector has claimed its biggest victim so far. The country’s second largest consumer electronics retailer, Circuit City, went into bankruptcy yesterday owing over $600 million.

The collapse came a week after the company tried a last ditch attempt to slash store and staff numbers. That seems to have frightened suppliers and other creditors who started demanding cash on the knocker for every deal, or refused to trade, forcing this announcement to be issued by the company.

Circuit City will conduct liquidation sales at the 155 stores to be closed by the end of the year. It will make life tough for competitors.

Peter Fray

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