AmEx Scores a Starwood Win as Marriott Opts for Dual Issuers

(Bloomberg) -- American Express Co. signed another co-brand deal, winning dual-issuing rights with JPMorgan Chase & Co. for Marriott International Inc.'s suite of cards.

Marriott will introduce new co-branded products next year, with AmEx providing super-premium and small-business cards and JPMorgan offering mass-consumer and premium-consumer cards, the three companies said in a statement Tuesday. In the meantime, both issuers will retain their existing portfolios and continue to offer their current products.

“We expect our loyalty program members, owners and franchisees, and our shareholders will see significant incremental benefits from these new agreements,” Arne Sorenson, Marriott's chief executive officer, said in the statement.

The deal puts to rest months of speculation about the fate of AmEx's popular Starwood Preferred Guest card. Investors feared that Marriott's acquisition of Starwood Hotels & Resorts Worldwide Inc. would endanger AmEx's Starwood partnership, which accounts for 5 percent of the company's loans and 2 percent of total spending on the firm's cards. Marriott has long had its own co-brand deal with JPMorgan, the largest U.S. credit-card lender, and Visa Inc., the world's biggest payments network.

Combining Programs

Marriott still intends to combine its loyalty programs into a single platform for its 100 million members by late next year, the company said in the statement. Merchants like Marriott have benefited from increased co-brand card competition, as issuers and networks lower their fees and offer up more perks to win the lucrative deals.

“Marriott's co-brand credit cards have been a meaningful contributor to the success of Marriott's loyalty programs and a sign of the extraordinary value of our portfolio of brands,” Sorenson said in the statement.

Still, co-brand credit cards are facing increasingly stiff competition from banks' proprietary products, including the AmEx Platinum and JPMorgan's Sapphire Reserve, which drew so many applicants during its 2016 debut that the company temporarily ran out of materials to mint the card.

The Marriott deal is another win for outgoing American Express CEO Ken Chenault, who steps down in February. In June, the company also won exclusive rights to issue credit cards for Hilton Worldwide Holdings Inc., ending an agreement in which it shared the business with Citigroup Inc. AmEx's shares had struggled after the company lost a bidding war to Citigroup for Costco Wholesale Corp.'s card portfolio and failed to renew its partnership with JetBlue Airways Corp. in 2015.

Lower Returns

Landing the renewed deal with Marriott was a result of AmEx's leadership in travel and small-business credit cards, Chenault said. He acknowledged that co-brand competition has taken its toll.

“The returns we got on the prior deal were higher,” Chenault said Tuesday at an investor conference in New York. “But the reality is the returns we're getting on this deal are sustainable and attractive for us.”

Given the likely cost of securing the deal, it was probably a “lose/lose” situation for AmEx, RBC Capital Markets analyst Jason Arnold said in a note to investors.

“We remain concerned that‎ high competition among premium card issuers and a less compelling value proposition to both merchants and consumers will continue to challenge American Express,” said Arnold, who has a neutral rating on the stock.

AmEx shares climbed 0.6 percent to a record $99.20 at 11:58 a.m. in New York. The stock has jumped 34 percent this year, compared with the 20 percent advance of the 67-company S&P 500 Financials Index.

To contact the reporter on this story: Jenny Surane in New York at jsurane4@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Larry DiTore, Steven Crabill

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