Trump's Rate Cap Proposal Escalates Regulatory Threat to American Express's Profitability

What happened

President Trump has proposed a temporary 10% cap on credit-card interest rates, leading bank executives to carefully oppose it while avoiding direct conflict with the White House. For American Express, which derives significant revenue from finance charges, such a cap could immediately compress net interest income and pressure its high-ROE, spend-centric business model. The DeepValue master report already flags regulatory risks—including fee caps and routing mandates—as a primary threat to AXP's durable moat and premium economics. With the stock trading ~59% above a conservative DCF estimate and valuation multiples at ~24x earnings, any regulatory headwind could trigger a sharp derating given the thin margin of safety. This development heightens near-term uncertainty, aligning with the report's watch items on credit-card economics and reinforcing the need for vigilance on legislative outcomes.

Implication

If implemented, a rate cap would likely reduce AXP's net interest income, directly impacting profitability and possibly leading to lower earnings estimates that could devalue the stock. Given the stock's premium valuation—trading at ~24x trailing earnings and 59% above DCF—even minor regulatory setbacks could trigger significant multiple compression, eroding shareholder returns. This news underscores the broader regulatory environment highlighted in the DeepValue report, where fee pressures and routing rules threaten AXP's high-margin business, making regulatory outcomes a critical catalyst. Investors should monitor bank lobbying efforts and political developments closely, as successful opposition could mitigate risks, but failure might accelerate a shift toward a more negative stance. In the interim, the increased uncertainty warrants caution, potentially delaying any upgrade from the 'WAIT' recommendation until clarity emerges on this and other regulatory fronts.

Thesis delta

The DeepValue report's 'WAIT' thesis hinges on full valuation and regulatory risks, with a potential downgrade to 'POTENTIAL SELL' if adverse regulations materialize. This news introduces a concrete regulatory threat—an interest-rate cap—that could directly impair AXP's earnings power, confirming and intensifying the identified risks. While not yet a full thesis shift, it raises the probability of negative outcomes, suggesting investors should prepare for increased volatility and possibly a quicker move toward a sell recommendation if the cap gains traction.