American Express (Amex) has posted a set
of mixed results for the first quarter of 2009, and while
credit-related losses and charge-offs continue to rise, there are
some positives for payment players who view the payment network and
issuer as a bellwether for the US economy.

Total revenues dropped 18 percent to $5.9
billion in the first quarter from $7.2 billion in the year-ago
period, and Amex’s net income plunged by 56 percent to $437
million. Amex significantly increased its level of loan loss
provisions, in line with actions taken by other US issuers (see
Short-term pain for long-term gain), with consolidated
provisions reaching $1.8 billion from $1.2 billion in the year-ago
period, reflecting increased charge-offs and past-due loans.

In the US card services division, Amex
reported a first-quarter net loss of $25 million compared to net
income profit of $523 million a year ago, while provision for
losses totalled $1.4 billion, an increase of 57 percent from the
year-ago period.

Amex’s net charge-off rate jumped to 8.5
percent from 6.7 percent in the fourth quarter of 2008 and 4.3
percent from the year-ago period.

Amex fared little better in the international
markets, with first quarter net income falling to $39 million from
$133 million in the year-ago period and total revenues slipping 14
percent to $1 billion. One of the few bright spots for the company
was its global network and merchant services division, which posted
a 6 percent growth in net income to reach $237 million.

Where Amex has been successful in the latest
quarter is in reducing operating expenses, which fell 22 percent to
$3.6 billion. This fall is on the back of Amex cutting marketing,
promotion, rewards and cardmember services – along with 10 percent
of its workforce, as part of a re-engineering initiative announced
in November 2008, aimed at saving the company $1.8 billion in

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Controlling costs will be a recurring theme
for Amex during the rest of this year, with Dan Henry, Amex’s chief
financial officer, warning in a conference call that the US net
charge-off rate is expected to climb another 2 to 2.5 percent
during the second quarter as the US unemployment rate, already at
8.5 percent, heads higher (to around 9.7 percent by December 2009
according to Amex). Henry also indicated that further staff
reductions could be implemented during the second quarter.

Measures taken by Amex to reduce its US card
portfolio and its exposure to further credit losses, including
closing accounts, slashing credit limits and offering cardholders
incentives to close their accounts, saw US cardmember billed
business drop 15 percent to $78 billion from $92.1 billion in the
year-ago period. However, slowing cardmember spending continues to
drag on Amex’s results, with average basic cardmember spending
dropping to $2,391, 16 percent down from $2,838 in the year-ago

Henry said: “This decrease [in billed
business] is in line with what we have seen at our competitors and
given the level of corporate spending and discretionary consumer
spending in our business, you might think that we would come in
below the competition but we did not. Cards in force in this
segment are down 1 percent and that reflects the impact of lower
investment levels and the credit and collection actions that we
have taken.”

However, Sanjay Sakhrani, an analyst at Keefe,
Bruyette & Woods (KBW), said Amex may have underestimated the
deterioration of the US economy.

“Its charge-off guidance was predicated on
December unemployment rate of 9.7 percent,” Sakhrani told
CI. “While this assumption is not necessarily a low rate
to use, it is unclear if it will prove to be too aggressive given
the extremely high levels of weekly jobless claims we are currently
experiencing in the US.

“We would note that KBW’s baseline assumption
assumes a 12 percent unemployment rate and this is reflected in our
estimates for the company.”

American Express

Provision for losses


Q108 ($m)

Q109 ($m)

% change

Charge card




Cardmember lending












Source: CI, company reports