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HEROES

While rumors abound regarding a possible hostile bid by Glaxo Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> for SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %> after their recent talks failed to create the world's largest drug maker, Sweden's Astra AB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: A)") else Response.Write("(NYSE: A)") end if %> is now saying that it's looking to merge with a competitor of comparable size as well. Examples Astra named were Zeneca Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEN)") else Response.Write("(NYSE: ZEN)") end if %>, Schering-Plough Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>, and Bayer AG's drug division, though no formal talks are underway. This worldwide merger fever has pharmaceutical companies scrambling to join hands in order to boost research synergies and reduce costs. For Astra, a merger appears to be the best way to boost earnings because its patent for ulcer treatment drug Losec, the world's best-selling prescription drug, will expire in 2001. Sales of Losec make up about half of the company's total revenue. Astra is somewhat limited in its maneuvers, however, because of an existing joint sales and marketing agreement in the U.S. market with Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %>. The talk of mergers sent SmithKline up $1 7/8 to $65; Zeneca rose $5 1/8 to $130 5/8; Schering-Plough added $2 3/16 to $74 3/8; and Merck gained $4 to $127.

Hospital and healthcare company Columbia/HCA Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> surged $2 13/16 to $29 3/16 after announcing that it expects Q1 EPS between $0.30 and $0.35 on the strength of numerous cost-cutting measures, which is substantially lower than the $0.66 per share reported for the first quarter of 1997 but substantially higher than the First Call consensus mean estimate of $0.15. The company reported a loss of $0.63 per share in the fourth quarter. On the news, Merrill Lynch upgraded its near-term rating on the company to "accumulate" from "neutral" while maintaining a "long-term buy" recommendation. Columbia/HCA also said it is proceeding with plans to file for tax-free status for its planned spin-offs of approximately 100 hospitals and that it expects its operating margin (which it defines as earnings before interest, taxes, depreciation, and amortization as a percentage of revenue) in the first quarter to reach the high teens.

Capital One Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> gained $4 1/2 to $69 1/16 after UBS Securities analyst Tom Hanley stated that account growth for the firm may yield EPS of $0.88 in the first quarter of 1998, which is above the consensus estimate of $0.85. Robust fee income increases seem to be making their way through the income statement after Capital One started charging customers annual fees in an attempt to put the brakes on the balance transfer game. For the overall industry, improved underwriting standards and proactive collection efforts resulted in the lowest monthly rate for chargeoffs since March 1997 as measured by the Fitch IBCA Credit Card Performance Index for February (for the January collection period) -- which came in at 6.52%. A number of card issuers also gained today, including MBNA Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KRB)") else Response.Write("(Nasdaq: KRB)") end if %>, up $7/8 to $34 3/8, Household Credit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HI)") else Response.Write("(NYSE: HI)") end if %> gained $4 15/16 to $134 9/16, and Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> added $1 1/2 to $54 11/16.

QUICK TAKES: Circus Circus Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> soared $1 11/16 to $23 15/16 on news that Hilton Hotels <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> has had discussions with the Las Vegas-based casino operator in recent weeks regarding the acquisition of the company. Hilton would pay as much as $32 a share or $3.04 billion in equity, according to the Las Vegas Review-Journal... Computer Associates International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> gained another $2 1/16 to $51 following yesterday's announcement that it will let its offer to buy Computer Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> for $108 a share expire. CIBC Oppenheimer raised its rating on CA to "buy" from "hold"... Crown Books Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRWN)") else Response.Write("(Nasdaq: CRWN)") end if %> surged $1 3/16 to $7 1/4 after the Dart Group Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DART)") else Response.Write("(Nasdaq: DART)") end if %>, a holding company once controlled by investor Herbert Haft and his family, announced that it has received an "unsolicited indication of interest" to acquire the whole company. Dart, which gained $15 to $135, owns majority stakes in the book store chain and in Trak Auto Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRKA)") else Response.Write("(Nasdaq: TRKA)") end if %>.

Wal-Mart Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> rang up $1 5/16 to $50 3/16 after the discount retailing giant announced plans to increase the size of its existing share repurchase program by about $1.6 billion, bringing its share repurchase plan for the next 12-18 months to $2 billion. The company also raised its annual dividend by 15% to $0.31 per share... Discount retailer Kmart Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> added $9/16 to $16 1/16 after yesterday reporting a 6.3% increase in total sales in February and being upgraded by several brokerage firms, including Donaldson, Lufkin & Jenrette, which raised its rating on the company to "buy" from "market perform"... Office equipment retailer Staples Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> tacked on $1 13/16 to $23 1/4 after announcing late yesterday fourth quarter earnings of $0.24 versus $0.18 for the year-earlier period. The First Call mean estimate was $0.23... S3 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIII)") else Response.Write("(Nasdaq: SIII)") end if %> rose $1 7/16 to $7 3/16 on widespread rumors that the computer chip maker was in takeover talks. One investment newsletter said S3 was in negotiations with Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, but S3 denied the rumors.

Education software firm The Learning Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> earned an A+ for the day, gaining $1 11/16 to $19 after announcing that it has agreed to acquire Mindscape Inc., an education and entertainment software publisher, for $150 million in cash and stock. The Learning Co. expects the acquisition to be accretive to 1998 EPS by at least $0.05... Biocidal products maker Alcide Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALCD)") else Response.Write("(Nasdaq: ALCD)") end if %> jumped $8 3/4 to $56 1/4 after announcing that the Food and Drug Administration approved the company's petition for the use of Sanova as an antimicrobial agent in the processing of red meat... Sunglass Hut International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> soaked up $1 11/32 to finish at $9 15/32 after BT Alex. Brown yesterday raised its rating on the sunglasses retailer to "buy" from "market perform."

Vanstar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VST)") else Response.Write("(NYSE: VST)") end if %> rose $1 3/16 to $12 15/16 after BA Robertson Stephens raised its rating on the computer systems integrator and distributor to "buy" from "long-term attractive"... Boston Beer Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAM)") else Response.Write("(NYSE: SAM)") end if %> added $1/2 to $9 11/16 after money manager Vince Carino told Business Week that he has taken a 5% stake in the craft brewing company as well as a 5% stake in Redhook Ale Brewery <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HOOK)") else Response.Write("(Nasdaq: HOOK)") end if %>. Carino expects both to double within a year. He also expects Anheuser Busch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BUD)") else Response.Write("(NYSE: BUD)") end if %>, which owns a 25% stake in Redhook, to make a bid for the rest of the company for $11 to $12 per share... Home improvement contractor Diamond Home Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DHMS)") else Response.Write("(Nasdaq: DHMS)") end if %> gained $3/4 to $6 3/4 after announcing that it will acquire privately held Reeves Southeastern Corp. for around $42 million.

Avant! Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %>, which develops integrated circuit design automation software, surged $2 5/8 to $15 17/32 after announcing that its Q1 results will exceed Wall Street analysts' estimates of $49.26 million in revenues and earnings per share of $0.31... Networking products company Applied Innovation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AINN)") else Response.Write("(Nasdaq: AINN)") end if %> gained $1/2 to $7 1/16 after announcing that it is seeking a "strategic partner" to leverage the expanded development of its Internet Access DSAM product line, which consists of products designed to allow data calls to bypass voice switches in public phone networks... Electronics for Imaging <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFII)") else Response.Write("(Nasdaq: EFII)") end if %> vaulted $4 to $24 13/16 after Prudential Securities raised the digital color printing product developer's 12- to 18-month price target to $35 from $30... Remote networking access products maker Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> rose $2 5/8 to $35 1/16 after Everen Securities raised its intermediate-term rating on the company to "outperform" from "market perform" and maintained its "long-term outperform" rating.

Death care company Equity Corp. International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EQU)") else Response.Write("(NYSE: EQU)") end if %> gained $2 1/2 to $23 15/16 after yesterday reporting fourth quarter earnings of $0.19 per share on sales of $38.7 million, compared with $0.17 in the year-earlier period. The 1996 earnings included one-time gains of roughly $0.02 per share... ProxyMed Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PILL)") else Response.Write("(Nasdaq: PILL)") end if %>, a healthcare information systems company, jumped $1 1/4 to $9 7/8 after reporting a fourth quarter loss of $0.30 per share versus a loss of $0.19 for Q4 1996... Drug manufacturer ICN Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICN)") else Response.Write("(NYSE: ICN)") end if %> climbed $5 5/16 to $59 3/16 after yesterday reporting fourth quarter earnings of $0.49 per share, up from $0.46 the year before.

Food products manufacturer International Home Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHF)") else Response.Write("(NYSE: IHF)") end if %> rose $2 1/16 to $30 7/16 after reporting fourth quarter earnings of $0.25 a share before charges, compared with $0.14 per share in Q4 1996... Lincoln Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LECOA)") else Response.Write("(Nasdaq: LECOA)") end if %>, which makes arc welding products, industrial electric motors, and plasma oxyfuel cutting equipment, rose $5 1/4 to $44 on announcing plans to convert its two classes of shares into a single class of voting stock and double the outstanding shares by forming a holding company and issuing two new shares for each existing voting and non-voting share, effectively a 2-for-1 stock split.

GOATS

Information technology and software engineering services provider PRT Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRTG)") else Response.Write("(Nasdaq: PRTG)") end if %> lost half its value today, falling $9 9/16 to close at $9 9/16 after saying it expects a fiscal Q1 net loss of about $3 million due to customer delays in starting Year 2000 projects and changes in ramp-up plans for other projects. Sales are expected to come in below the Q4 figure of $19.8 million. The earnings shortfall will amount to about a $0.16 loss per share. Analysts surveyed by First Call had been expecting earnings of $0.08 per share. Salomon Smith Barney cut its rating on the stock to "neutral" from "buy," based on a "lack of visibility and management credibility" arising primarily from the fact that management had already allocated staffing and other resources to the projects. Analysts believe the company has known since January that the projects would be pushed back, but no one bothered to mention it to investors until today. Benefiting from its rival's misfortune, Y2K services company Peritus Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTUS)") else Response.Write("(Nasdaq: PTUS)") end if %> was up $1 3/4 to $15 5/8 today.

Select Software Tools <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLCTY)") else Response.Write("(Nasdaq: SLCTY)") end if %> dropped $1 25/32 to $5 1/32 after the component-based modeling and management software provider reported a Q4 loss of $0.22 per share (excluding charges) compared to earnings of $0.04 per share a year ago. Analysts had been expecting a Q4 loss of $0.19 per share. Total revenues jumped 90% to $9.1 million, but sales and marketing expenses expanded 146% to $6.1 million while R&D outlays tripled to $2.2 million during the quarter. In addition, third quarter earnings were adjusted downward by $3 million to $4.13 million after the guys with the green eyeshades figured one of the firm's contracts should apply to future periods rather than fiscal 1997. A final blow came with the departure of the company's Chief Financial Officer Jerry Davison. SoundView Financial cut the stock to "short-term hold" from "short-term buy." BT Alex. Brown, however, reiterated its "accumulate" rating on the stock.

QUICK CUTS: Compaq Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> dropped $2 5/8 to $25 in after-hours trading when the PC maker reported that it expects earnings for the upcoming quarter to be breakeven. Excess inventory and price-cutting (to help dealers sell through the channel) are the culprits...Commercial cotton and soybean seed breeder Delta Pine & Land Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLP)") else Response.Write("(NYSE: DLP)") end if %> was cut $3 1/16 to $43 15/16 after Piper Jaffray downgraded the stock to "neutral" from "buy"... Toy maker Grand Toys International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRIN)") else Response.Write("(Nasdaq: GRIN)") end if %> was thrown for a $1 1/16 loss to $5 after reporting that it has ended merger negotiations with Great American Fun Corp. because of an inability to agree on the terms of the proposed combination... Branded activewear retailer Big Dog Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BDOG)") else Response.Write("(Nasdaq: BDOG)") end if %> was in the doghouse today, dropping $1/4 to $6 1/2 after reporting Q4 EPS of $0.22, which was a penny shy of the First Call mean estimate... Reinforced polymer implant manufacturer Bionx Implants <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BINX)") else Response.Write("(Nasdaq: BINX)") end if %> slipped $1 3/8 to $23 1/4 after BancAmerica Robertson Stephens downgraded the stock to "long-term attractive" from "buy."

Property and casualty insurer Unico American Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UNAM)") else Response.Write("(Nasdaq: UNAM)") end if %> gave back $1 to $16 1/2. Yesterday, the stock gained 17% on news that the company is in preliminary merger talks with an unidentified company... Ceramic and porcelain microwave capacitor maker American Technical Ceramics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AMK)") else Response.Write("(AMEX: AMK)") end if %> lost $1 3/4 to $14 1/2 after saying its fiscal Q3 sales would come in below the levels recorded in the previous two quarters, due to the Asian financial crisis... Precision automotive fuel systems maker Walbro Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WALB)") else Response.Write("(Nasdaq: WALB)") end if %> was driven $7/8 lower to $11 1/2 after the company suspended its quarterly dividend of $0.50 per share as part of a restructuring plan... Shares of Osicom Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %> dropped $13/16 to $5 3/16 after the networking products company reported Q4 earnings of $0.02 per share, 82% lower than the $0.11 per share earned a year ago.

Semiconductor and wireless communications products maker Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> plunged $2 7/8 to $53 after warning that its fiscal Q1 sales will be flat compared to the same period a year ago, which will likely cause earnings to come in well below the First Call mean estimate of $0.47... Sub-prime mortgage lender Emergent Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMER)") else Response.Write("(Nasdaq: EMER)") end if %> dipped $3/8 to $9 after advising investors that higher costs, lower volumes, and changes in its loan sale policy will result in a "significant loss" in fiscal Q1. The company also reported Q4 EPS of $0.15, which was in line with the First Call mean estimate... Immunological reagents and test kits supplier BioSource International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIOI)") else Response.Write("(Nasdaq: BIOI)") end if %> sank $7/16 to $5 7/8 after reporting Q4 EPS of $0.08 versus $0.09 a year ago... Physician practice management firm FPA Medical Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> fell $5 11/16 to $18 3/4 after reporting Q4 EPS of $0.30 (before charges) versus a loss of $0.27 a year ago. The First Call mean EPS estimate was $0.29... Branded apparel maker Cherokee Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKE)") else Response.Write("(Nasdaq: CHKE)") end if %> lost $1/2 to $8 1/8 after the company's president, Patricia Warren, resigned to spend more time with her family.

FOOL ON THE HILL
An Investment Opinion
by Dale Wettlaufer

AmEx Hits All-Time High

American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> gained $1 11/16 to $93 5/16 today, closing just under its all-time high of $93 1/2. The financial services company has succeeded in delivering value to shareholders over the course of the decade, having generated a compounded annual return of 17.5% since January 1990. That compares favorably with Dow component J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %>, the 8-year annual return of which is 17.5%, but falls short of the 8-year annual return of Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>, which has generated a 37.2% annual return in the decade. For comparison, the S&P 500 has returned 18.6% annually over this same period (all figures include reinvested dividends). "That's all well and good," one might say, "but what's that do for me going forward?"

American Express is neither fish nor fowl, neither credit card company nor a services company that goes light on the capital. If one looked at its financials and covered up the company's name, one would think it's a bank. Since it looks like a bank in so many ways (which we'll get to), we'll look at the company in terms of how its financials are similar to companies called "banks". First, though, we need to look at its major moving parts and understand how it works before we look at the financials.

American Express is not a regular bank as one might think of banks. The normal assumption of what banks are all about doesn't work in all circumstances these days. The concept of "bank" is changing very rapidly as regulations on what banks can do melt away. State Street Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STT)") else Response.Write("(NYSE: STT)") end if %> is more a financial services outsourcer and money manager than it is a commercial bank, though it is usually listed with commercial banks. J.P. Morgan is more a brokerage, investment bank, and money manager than it is a commercial lender. Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> is also a money manager by virtue of its operating the Dreyfus mutual funds complex. The definition of a bank as a company that takes in deposits for savers, lends out to borrowers, and facilitates transactions lags the realities of what banks do now and will be doing in the next century.

A couple of weeks ago, we wrote about Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> as a facilitator of transactions since that company's burgeoning account growth comes from secured credit cards, where the company lends back to cardholders the money that those cardholders have put on deposit with Capital One. That formula has worked exceedingly well for Capital One in the past year, explaining its excellent shareholder return. This also explains the excess returns that Amex has generated historically. Facilitating transactions where the card issuer doesn't have to lend out its money but gets paid for being a middleman is something Amex has done for several decades. The company's traveler's checks are an excellent example of Amex getting paid for its middleman status.

A customer comes in and hands over cash to Amex in return for a bundle of travelers' checks. Between the time Amex issues the checks and the customer spends them, Amex gets to keep that cash and invest it in loans, interest-bearing securities, or other investments. Since Amex typically takes in more cash each year for issuing traveler's checks than it has to pay out, and since it doesn't pay interest on traveler's checks, the deposits are very much like checking account deposits at a commercial bank. Checking account deposits and other noninterest-bearing deposits at banks are called "transaction deposits," which is intuitively what one might call the liabilities that arise from American Express issuing traveler's checks. With an average of around $6 billion in traveler's checks outstanding in 1997, the cash the company takes in for the checks could generate a minimum of $300 million if invested in money market instruments.

The real meat of the company's transaction facilitation, however, comes from its American Express card users. Through nine months of 1997, the company's cards were used nearly one out of five times something was purchased with a card. Visa and MasterCard accounted for 72.7% of card transactions (excluding debit cards), while Amex held a 19.6% market share. Visa and Mastercard charges are split up amongst literally hundreds of lenders, though. Measured by cards-in-force, Amex's closest competitor is Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %>. However, there is a vital difference how Citicorp's card business is structured and how Amex does things.

When the typical Citicorp cardholder charges something, he is taking out a loan from the bank. If he pays the loan back in full within the grace period, Citicorp doesn't generate any interest income. The company does generate revenue from the discounted payable to the merchant who sold the goods to the Citicorp cardholder, though. For instance, if the merchant's price to the cardholder is $100 and a Citicorp card is used, Citicorp will pay the merchant $98, pay the transaction processor a fee (if Citicorp isn't the processor itself), and pocket the rest of the discount. Citicorp then hopes the cardholder will not pay back all at once the amount charged. They'd rather have the cardholder borrow money at 17-21%.

Amex, on the other hand, requires the cardholder to pay back everything within 30 days of receiving the bill if he used an Amex card that doesn't offer revolving credit (such as the Optima card). Amex makes its money on the yearly fees and a larger discount from merchants. Where another card issuer might charge a 2% discount on purchases, Amex might charge a 5% discount. Amex doesn't lend the money to the cardholder on anything but a short-term basis, then, makes its money up front on the transaction, and takes less credit risk than a bank engaging in unsecured lending. Some merchants balk at the discount rate from Amex, but Amex has held its penetration in the retail market while building its penetration in supermarkets from nearly no supermarkets earlier in the decade to almost 50% this year. Part of this is due to the company's installed base of merchant processing terminals, part is due to the rewards Amex gives it customers for using the card, and part is due to the company's branding campaign.

On Monday we'll take a look at the other businesses of American Express -- the rest of Travel Related Services and American Express Financial Advisors. We'll also look at the company's financials and why it looks like a bank, or more importantly, how it looks like what other banks want to look like.

CONFERENCE CALLS

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Dale Wettlaufer (TMF Ralegh), Fool
Alex Schay (TMF Nexus6), Fool
Yi-Hsin Chang (TMF Puck), Fool
Brian Graney (TMF Panic), Fool
Contributing Writers

Brian Bauer (TMF Hoops), Fool
Editor