Five months after American Express and Costco announced they would go their separate ways and end their exclusive relationship – essentially allowing members of the warehouse club to use other cards – shareholders for the credit card company have filed a lawsuit claiming it blindsided investors with the loss of the contract.
The lawsuit [PDF], filed by Plumbers and Steamfitters Local 137 Pension Fund, accuses American Express of failing to reveal how significant the 16-year long contract with Costco had become to the business.
According to the lawsuit, which seeks class-action status on behalf of all shareholders who bought stock between Oct. 16, 2014 and Feb. 11, 2015, American Express had accelerated its talks with Costco regarding renewal of its exclusive deal that was set to expire in March 2016 without the knowledge of investors.
“Defendants never disclosed the financial impact of the U.S. Costco co-branding agreement on AmEx’s reported financial results,” the suit states.
The investors contend that the U.S. Costco co-branding contract was “highly material to AmEx’s business,” representing 8% of the company’s revenues in 2014; 20% of its outstanding loans and 10% of its cards issued worldwide.
“Because AmEx concealed throughout the class period just how material the U.S. Costco co-branding relationship was to AmEx’s business and financial prospects and thereby overstated the continuing revenue growth prospects of its all-important U.S. Card Services segment,” the lawsuit states.
In December 2014, the shareholders claim AmEx’s stock traded at artificially inflated prices – reaching a high of $95 per share. Then without notice in February 2015, the company announced it had lost the Costco contract and stocks plummeted to $77.53 per share.
The lawsuit, which asks for a jury trial, seeks unspecified damages.
[via Reuters]
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