Card pact underscores rebound by Amex; issuer beats out Citicorp's Diners Club for $2.5 billion U.S. account.

Issuer Beats Out Citicorp's Diners Club for $2.5 Billion U.S. Account

No longer content to be a slumbering giant, American Express Co. aggressively pursued and won a government charge card contract that will generate $2.5 billion of volume a year.

On Friday, the U.S. General Services Administration awarded the travel and entertainment contract to American Express over Citicorp's Diners Club International, which has provided the government charge card for 10 years.

In winning the largest commercial travel card account in the world, American Express sends another clear signal that it is no longer content merely to stem losses in its card programs, but is aggressively pursuing new business.

The company recently announced plans to resume marketing its Optima credit cards after a hiatus to reposition the troubled product. It also is compeling aggressively with banks in the fledgling corporate procurement card market, which represents $400 billion of potential charge volume.

Clearly Dominant

The government contract solidifies American Express' dominance in the corporate travel and entertainment card market. Amex captures 56% of the market, compared with Diners Club's 11%.

It is seen as a sign that the bare-knuckles management style of chief executive Harvey Golub, who took the reins of American Express earlier this year after a stint-as president of the card unit, could soon make Amex a more fearsome competitor.

Deal Sweeteners

"I think it does foretell a very serious attitude on the part of the new American Express management to provide the best services at a lower cost," said Stanley W. Anderson, president of Procard Inc., a Golden, Colo., "It's a good contract " consulting firm that specializes in corporate purchasing cards.

American Express wooed the government with an $18 million payment to cover the costs of making the transition to a new card and a refund program that could yield $120 million over five years.

Additionally, American Express will refund the government a percentage spent on travel expenses. The GSA estimates that federal employees will spend $6.8 billion on official travel this year. About a third o the employees would use the card.

GSA Administrator Roger W. Johnson called the contract a "no-cost credit card, plus refunds."

Indeed, some rivals in the travel and entertainment card business suggested that American Express may have erred by being too aggressive.

"We believe Visa must have been hurting American Express in the corporate T&E market, and this is evidence of their dire need to replace that lost volume, apparently at any cost," said Richard H. Hagadorn, senior vice president in the credit products division of Visa International.

|Psychological Boost'

Visa members dropped out of the bidding, he said, because the government was unwilling to agree to provisions guaranteeing timely payment. He said banks that offer corporate travel cards insist on such provisions to offset the lack of interest income on the accounts.

Nevertheless, the boost of nearly a million cards clearly labeled "U.S. government" will give Amex a net increase in cardholders this year, after several years of decline.

"It's likely to provide a psychological boost to American Express because it's a lot of cardmembers," said Guy Moszkowski, an analyst at Sanford C. Bernstein & Co.

"We think it is going to be profitable," said Tom Facciola, an analyst with S.G. Warburg & Co.

Mr. Facciola expects at least a 3-cent boost per share in 1994. Also, he said, the contract could lead to new business.

American Express stock, which traded as low as $18 before Mr. Golub took the helm, closed at $35.375, off 50 cents, on Friday.

No-Fee Travelers Checks

The contract offers a range of financial benefits to the government, Mr. Johnson said, including no-fee travelers checks, reduced costs for automated teller machine transactions, and prompt payment incentives.

"It is a good contract for the government," said Roger H. Ballou. president of American Express Travel Related Services Inc. "It's a good contract for us."

The one-year T&E contract has four, one-year renewals, and will service more than 900,000 federal employees who travel on official business.

Mr. Ballou said merchants who accept American Express can look forward to billions of dollars in new business.

American Express will take the contract over from Diners on Nov. 30.

The Citicorp unit will lose more than 23% of its annual U.S. charge volume. Despite the loss, Diners said it will continue its niche marketing strategy of serving frequent business travelers. Diners expects to report record profits for the third year in a row this year.

"We believe we were superior on the technical side of the proposal, but fell short on the financial consideration side," said Robert Rosseau, president and chief executive of Diners. "As much as we hate to lose a major customer, we can't afford an uneconomic relationship."

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