[R]12:00PM New York – American Express fell 10% on the earnings warning.[/R]

American Express (AXP: chart) declined $4.70 to $44.20 after it said that the third quarter profit will be below previous estimates and customers are slow in paying bills.

American Express will take a pre-tax charge of approximately $440 million (approximately $275 million after-tax) for the fourth quarter. This charge will raise worldwide lending reserves to one hundred percent of past-due loans and increase reserves related to the charge card portfolio.

American Express said it expects to report overall growth in worldwide Cardmember spending of about 16 percent for the fourth quarter (13 percent on a foreign exchange adjusted basis). The growth rate, however, trailed off to 13 percent in December (10 percent FX adjusted) with particular weakness in U.S. billings. The Company also expects to report that delinquencies in the managed U.S. lending portfolio increased to approximately 3.2 percent in the fourth quarter of 2007 from 2.9 percent in the third quarter, and that the write-off rate in this portfolio increased to approximately 4.3 percent from 3.7 percent for the same periods.

American Express expects fully-diluted earnings per share from continuing operations to be in the range of $0.70 to $0.72 for the quarter compared to $0.73 per share a year ago. For the full year 2007, fully-diluted earnings per share from continuing operations is expected to be in the range of $3.38 to $3.40, an increase of approximately 16% from 2006.

Amex chairman and chief executive Kenneth I Chenault said, “We see some negative credit trends among U.S. consumers during December, particularly in California, Florida and other parts of the country most affected by the housing downturn.”

As previously announced, fourth quarter results will also recognize the $1.13 billion ($700 million after-tax) initial payment in the Company’s settlement agreement with Visa, along with a number of significant additional expenses.

Based on business and economic trends during December, the Company expects that growth in spending will slow in 2008. The Company’s 2008 business plan currently assumes worldwide billed business growth of approximately 8% to 10% for the full year.

While such growth would be higher than industry-wide levels during the recent strong economy, it will still represent a decline from the levels American Express has been generating in recent years.

The 2008 business plan also assumes write-off levels in the managed U.S. lending portfolio will average 5.1% to 5.3% for the full year.

MasterCard (MA: chart), the second largest network of credit card processors, fell 7% or $15 to $181.03.

[R]10:00AM New York – Bank of America agrees to purchase Countrywide Financial for $4 billion.[/R]

Countrywide Financial Corporation, at the center of the mortgage market malaise, agreed to be bought out by Bank of America for $7.16 per share or $4 billion.

In August 2007, Bank of America purchased preferred stock in the troubled mortgage lender for $2 billion at $18 with 7.25% yield and is convertible at $18 per share.

Countrywide stock has plummeted in value after taking significant losses and rumors of impending bankruptcy filing that the company has denied.

Deal Terms

Under the terms of the agreement, shareholders of Countrywide would receive .1822 of a share of Bank of America stock in exchange for each share of Countrywide.

The purchase is expected to close in the third quarter and to be neutral to Bank of America earnings per share in 2008 and accretive in 2009, excluding merger and restructuring costs.

Bank of America expects $670 million in after-tax cost savings in the transaction, or 11% of the expense base of the two companies'' mortgage operations. About one third of those savings would come in 2009, two thirds would be realized in 2010 and savings would be fully realized in 2011.

Bank of America in the morning trading fell 93 cents to $38.36 and Countrywide fell $1.27 to $6.49.