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August 13, 2015

End of Amex / U.S. Costco relationship results in securities fraud class action

On July 30, 2015, a proposed class of investors brought suit against American Express, alleging that the credit card company concealed the financial impact of its co-branding relationship with the U.S. operations of Costco Wholesale Corp.

On February 12, 2015, AmEx announced that Costco would not renew its co-branding agreement. At the same time, AmEx disclosed that this relationship represented 8 percent of AmEx’s global business, 20 percent of its outstanding loans and 10 percent of its cards issued worldwide. In fact, one in 10 AmEx cards in the United States were issued as a result of its relationship with Costco.

These disclosures allegedly caused AmEx’s stock value to dip dramatically. As a result, investors are alleging that AmEx is responsible for billions of dollars in lost market capitalization.

Loss of Costco Canada relationship spurred early, undisclosed negotiations

In September 2014, Costco Canada announced that it would be ending its co-branding relationship with AmEx in favor of MasterCard. This event prompted AmEx to accelerate discussions with Costco concerning the renewal of its U.S. co-branding relationship that was set to expire on March 31, 2016. The efforts of these negotiations, which investors were not made aware of, eventually failed. Then, on February 12, 2015, AmEx announced not only the loss of its relationship with Costco U.S., but the financial impact this loss would have on the company. In addition to disclosing the loss of approximately 10% of its business, Amex stated that its 2015 and 2016 profits would suffer and that its efforts to increase earnings per share would not be met until 2017 at the earliest.

The Motley Rice securities team is currently investigating this proposed class action, which includes investors who purchased Amex stock between Oct. 16, 2014, and Feb. 11, 2015. The case is Plumbers and Steamfitters Local 137 Pension Fund v. American Express Company et al. No. 1:15-cv-05999 in the U.S. District Court for the Southern District of New York.