updated 12/23/2008 1:44:21 PM ET 2008-12-23T18:44:21

American Express Co. said Tuesday it received preliminary approval to obtain $3.39 billion in capital as part of the government's $700 billion bank investment program.

Primarily a credit card lender, American Express changed its structure to become a bank holding company last month. The change in status allows American Express to tap a wide array of government funding and lending programs, including the bank investment program.

Other major financial firms have been becoming bank holding companies to access federal lending programs, such as Goldman Sachs Group Inc., Morgan Stanley and CIT Group Inc.

CIT, a New York-based commercial finance firm, had its status change approved Monday, and received preliminary approval to obtain $2.33 billion as part of the investment program earlier Tuesday.

The government investment, administered by the U.S. Treasury Department, is part of a broader program to invest in banks amid the ongoing credit crisis. It's an effort to stabilize the financial services sector and spur lending between banks and to consumers and businesses.

Many banks have been hit hard over the past year-and-a-half by a sharp rise in mortgage defaults and a freezing of credit markets. As some financial firms collapsed in recent months, banks shied away from lending to each other and to customers for fear that losses would mount.

The government program calls for the U.S. Treasury Department to receive preferred stock and warrants to purchase common stock in return for the investment. The preferred stock carries an interest rate of 5 percent per year for the first five years. It then increases to 9 percent after five years if the preferred shares are not redeemed.

Financial services firms, such as American Express, had faced dwindling funding options as the credit crisis mushroomed in recent months. The securitization market, which American Express used to raise operating capital, has all but evaporated as investors avoid purchasing all but the safest forms of debt. The market had allowed lenders to bundle packages of loans to be sold to investors.

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