Credit Commentary

American Express Earnings Release

By Administrator on Tuesday, April 28 2009

American Express Company (NYSE: AXP) reported first-quarter for year 2009 income from continuing operations of $443 million, down 58 percent from $1.0 billion a year ago. Diluted earnings per share from continuing operations were $0.32, down 64 percent from $0.89 a year ago. The results were better-than-expected earnings as it slashed costs and said it intended to repay government bailout funds as soon as regulators allow, sending its shares up 6 percent.

The company said it expects another round of cost cutting in the second quarter, which follows efforts in October to slash costs by $1.8 billion through eliminating 7,000 jobs and lowering marketing and advertising expenses.

In February, the company took the unusual step of offering $300 to U.S. card holders to pay off their balances and close their accounts, in an effort to reduce its credit risk. Those efforts may have contributed to the 16 percent decline in spending volume on its cards. American Express long catered mainly to wealthy consumers, but earlier this decade it began reaching out to a wider range of clients, resulting in rising loan losses.

U.S. Card Services reported a first-quarter loss of $25 million, compared to a net income of $523 million a year ago. Total revenues net of interest expense for the first quarter decreased 17 percent to $3.1 billion, driven by reduced card member spending and lower securitization income, net.

Provisions for losses totaled $1.4 billion, an increase of 57 percent or $502 million from a year ago. The increase reflected higher write-offs and past due loans. On a managed basis, the net loan write-off rate was 8.5%, up from 6.7% in the fourth quarter and 4.3% a year ago. Owned net write-offs were 8.5% in the quarter, up from 7.0% in the fourth quarter and 4.5% a year ago.
Total expenses decreased 15 percent. Marketing, promotion, rewards and card member services expenses decreased 22 percent from the year-ago period, reflecting lower volume-related rewards costs and reduced investments in marketing and promotion. Salaries and employee benefits and other operating expenses decreased 6 percent from year-ago levels, reflecting primarily the benefits from the company’s ongoing reengineering initiatives and a favorable impact related to fair value hedge ineffectiveness.