American Express (Amex) has reported a 79 percent
loss in its fourth-quarter 2008 results with net income of $172
million, compared $831 million in the year-ago period. Amex also
reported a 34 percent fall in its yearly net income as compared to
its 2007 performance. This was the fifth consecutive financial
quarter in which the company suffered major losses.
Drastically reduced consumer spending and
a change in the US charge-off regime led to Amex’s US card services
unit posting fourth-quarter net income of $4 million, down from $7
million a year ago, with cardmember spending on a managed basis
dropping to $63 billion, compared to $63.2 billion in the fourth
quarter of 2007. US net charge-offs rose to 6.7 percent in the
fourth quarter of 2008 from 5.9 percent in the third quarter, and
the charge-off rate is expected to rise further during 2009 in line
with the rising US unemployment rate. Amex also slashed cardmember
reward expenses by 39 percent, and marketing and promotion
expenditure was cut by 35 percent as part of the company’s aim of
saving $1.8 billion in 2009.
Amex also changed its accounting policy
for US cardholders to comply with new regulations, charging off in
180 days as opposed to the previous period of 360 days.
Accordingly, Amex sped up charge-offs by $341 million during the
quarter and reduced its loan loss reserve by the same amount.
“We remain cautious about the economic
outlook through 2009, and expect cardmember spending to remain soft
with past-due loans and write-offs rising from current levels,”
Amex CEO Kenneth Chenault said. “However, we believe the
longer-term growth potential of the payments sector remains very
attractive. The investments we are making in our business will help
ensure that we can capitalise on those opportunities when the
Amex, which boasts a predominantly
affluent clientele, is bracing itself for more gloom over the
course of 2009.
“Overall, credit quality and spending
showed considerable deterioration, and will likely continue over
the next couple of quarters,” said Credit’s Suisse First Boston
analyst Moshe Orenbuch.