| NEW YORK
NEW YORK American Express Co and CIT Group, received approval to get $5.72 billion under the government's financial bailout program on Tuesday.
Both companies, struggling with mounting credit losses and higher financing costs, morphed into bank holding companies in order to qualify for funds under the $700 billion U.S. Treasury's Troubled Asset Relief Program.
The new status would also allow American Express, the fourth-largest U.S. credit card company, and CIT to borrow funds directly from the Federal Reserve's discount window.
American Express, which has been growing more than its peers in the last years by expanding aggressively in troubled markets such as California and Florida, got preliminary approval to receive $3.39 billion in fresh funds, in exchange for preferred shares and warrants.
In addition, commercial finance firm CIT will receive $2.33 billion of government funding.
Neither company would explain how they intend to use the taxpayers' money nor did they respond to repeated calls seeking further information.
The U.S. government launched the TARP plan in October in an attempt to strengthen the capital base of banks hammered by mounting losses and unfreeze the credit markets.
The program was later extended to other non-banking financial institutions, such as American Express and CIT, and the cash-starved automakers.
"We are in a significant financial crisis. The Treasury and the Fed are making up a game plan on the fly and they are trying to strengthen lots of these financial institutions in order to get them through this period," said Marshall Front, chairman of Front Barnett Associates in Chicago, adding that further measures could still be needed.
Front does not hold shares of American Express or CIT.
The U.S. Treasury has spent around $350 billion of the TARP funds.
American Express and CIT -- which had to go through a debt-for-equity swap in order to raise $1.5 billion to become a bank holding company -- said that in exchange for the TARP funds they would sell preferred stock and warrants to the U.S. Treasury.
"We continue to believe that CIT's conversion to a bank holding company should substantially enhance the company's financing platform over the longer term," Moshe Orenbuch, an analyst at Credit Suisse, said in a research note.
American Express shares fell 2.5 percent to $17.96, and CIT stock rose 1.91 percent to $4.26. Shares of American Express have fallen 65 percent this year, while the stock of CIT has lost 80 percent of its value.