In the US
cards industry, Bank of America (BofA) and American Express (Amex)
continue to follow impressive growth paths, as evidenced by their
earnings releases for the fourth-quarter and full-year 2006
reporting seasons.

The two organisations have chosen differing approaches to
increasing market share. BofA continues to benefit from its
lucrative MBNA acquisition and the growing popularity of debit
payment in the US, while Amex has enjoyed strong organic growth on
the back of increased cardmember spending. Both organisations also
benefited from lower loan loss costs in 2006, thanks to falling
bankruptcy and delinquent levels following the introduction of new
legislation in late 2005, which led to a spike in bankruptcy

MBNA acquisition boosts BofA

BofA reported that 2006 net income rose 28 percent to $21.13
billion from $16.47 billion a year earlier, reflecting both the
addition of MBNA at the start of 2006 and organic growth in most
major customer segments. Excluding pre-tax merger and restructuring
charges of $805 million, BofA earned $21.64 billion for the full
year 2006. Highlights for the bank included the successful
acquisition and integration of MBNA, making BofA the largest credit
card issuer in the US and UK.

BofA opened a record 2.4 million net new current accounts,
supported by programmes such as Keep the Change as well as
e-commerce accessibility and customer referrals. Debit card revenue
increased 23 percent to a record $1.91 billion. Card Services
posted revenue of $21.49 billion, which is a 150 percent increase
from 2005, and recorded a fivefold increase in net income to $5.64

However, provision expense was $5.01 billion in 2006, a 25 percent
increase from 2005. The increase in provision expense was driven by
the addition of MBNA and 2005 commercial reserve releases,
partially offset by lower bankruptcy-related credit costs on the
domestic consumer credit card portfolio.

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Net charge-offs totalled $4.54 billion, or 0.70 percent of average
loans and leases, compared with $4.56 billion, or 0.85 percent of
average loans and leases in 2005. The decrease in net charge-offs
was due to the impact of bankruptcy reform which accelerated net
charge-offs into 2005, partially offset by the addition of

In the fourth quarter of 2006, BofA’s net income was $5.26 billion,
compared with $3.57 billion a year earlier. Fourth-quarter net
income for BofA’s Global Consumer and Small Business Banking unit
rose 44 percent to $2.53 billion year-on-year. Revenue in the
period increased 46 percent to $10.63 billion, driven primarily by
higher credit card income, including the addition of MBNA, and
service charges. Fourth-quarter net income for Card Services was
$1.17 billion.

Amex grows on card spending

Amex reported fourth-quarter income from continuing operations of
$925 million, up 23 percent from $751 million a year ago. Including
expenses from discontinued operations – primarily businesses sold
in previous quarters – net income for the fourth quarter totalled
$922 million, up 24 percent from $745 million a year ago.

Consolidated net revenues rose 13 percent to $7.2 billion, up from
$6.4 billion a year ago, while consolidated expenses totalled $6
billion, up 10 percent from $5.4 billion a year ago. Revenue and
earnings in the fourth quarter were driven by record cardmember
spending during the 2006 holiday shopping season, and continued
growth in loan portfolios.

Amex’s US Card Services segment reported fourth-quarter net income
of $535 million, up 29 percent from $414 million a year ago. Total
net revenues for the fourth quarter increased 18 percent to $3.8
billion, reflecting higher spending and borrowing by consumers and
small businesses.

Marketing, promotion, rewards and cardmember services expenses
increased 13 percent, reflecting increased marketing and promotion,
business-building activities and greater volume-related rewards
costs. Provision for losses increased 3 percent. The impact of
higher loan volumes was offset in part by the decline in write-offs
from 2005, which included a high level of bankruptcy filings
associated with new legislation in the US.

Amex’s Global Network and Merchant Services unit reported fourth
quarter net income of $201 million, up 21 percent from $166 million
a year ago, while total net revenues increased 20 percent to $869
million. Amex said the increase reflects continued strong growth in
merchant-related revenue, primarily resulting from higher
company-wide billed business. Spending on Global Network Services
cards increased 67 percent from year ago levels and cards in force
increased 39 percent, reflecting growth from bank partnerships, as
well as the completion in 2006 of independent operator agreements
in Brazil, Malaysia and Indonesia.