Oct. 20 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, rose 9 percent in late trading after beating some analysts' estimates for third-quarter earnings.

Profit from continuing operations declined 23 percent to $861 million, or 74 cents a share, beating the 59-cent average estimate of 15 analysts surveyed by Bloomberg. Revenue at the New York-based lender rose 3 percent to $7.16 billion.

American Express lost more than half its market value this year as rising U.S. unemployment is forcing consumers to spend less and default on loans more. Cardholders failed to repay loans in the third quarter at almost twice the rate of a year earlier, American Express said. The company set aside $1.4 billion for future loan losses, less than the $1.9 billion estimate of John Williams, analyst at Macquarie Capital in New York.

``I can't imagine the loss-provision numbers could be as low as this without rising again in the future,'' Williams said in an interview after the release. He rates the firm ``neutral.''

American Express rose as high as $26.58 in extended New York trading. It fell back to $25.89 as of 6:18 p.m.

Net income declined to $815 million, or 70 cents a share, from $1.1 billion, or 90 cents, a year earlier, the company said today in a statement.

Cost Reductions

``We are moving ahead with re-engineering plans that will free up resources by reducing operating costs and staffing levels,'' Chief Executive Officer Kenneth Chenault said in the statement.

He said in a conference call that cost-cutting plans will add a ``significant'' amount of capital by early 2009. The company said in August it will cut jobs, resulting in a fourth- quarter charge.

Profit in the company's U.S. card business dropped 59 percent to $244 million from $592 million a year earlier as provisions for losses rose by half to $941 million. Uncollectible debt in the unit rose to 5.9 percent of loans from 3 percent a year earlier.

Discontinued operations resulted in a $46 million loss because of a unit of American Express Bank, which the lender said will be sold in 2009.

American Express will be able to meet its capital needs of about $24 billion over the next year through deposits and federal programs, Chief Financial Officer Daniel Henry said in the conference call.

Borrowing Falls

Consumer spending, the biggest part of the U.S. economy, is likely to falter after employers cut staff by the most in five years last month, pushing the jobless rate to 6.1 percent, according to the Labor Department. Borrowing by U.S. consumers fell $7.9 billion in August, the biggest drop since the Federal Reserve began tracking the figures in 1943.

The credit-card industry's default rates are ``all but certain'' to surpass post-recession peaks reached in 2003, Moody's Investors Service said in an Oct. 16 report. Unemployment may rise until the fourth quarter of 2009, pushing the default rate to a peak of about 8.5 percent from 6.82 percent in August, Moody's said.

Chenault withdrew in July an earnings-per-share growth forecast of 4 percent to 6 percent this year and said the company wouldn't meet longer-term targets until the U.S. economy improves.

Billionaire Warren Buffett's Berkshire Hathaway Inc. owns the largest American Express stake with 151.6 million shares, 13 percent of outstanding stock at year-end, according to Bloomberg data.

Weaker Economies

``The recent volatility in the financial markets has reinforced our view that consumer and business sentiment is likely to deteriorate further, translating into weaker economies around the globe well into 2009,'' Chenault said. ``Card member spending is likely to remain soft.''

The U.S. economic slowdown worsened in June, affecting even American Express's wealthier cardholders with high credit scores, said Chenault, 57.

Rising defaults hurt third-quarter profits at Discover Financial Services, which almost doubled provisions for loan losses and warned that it could set aside more this year. The Riverwoods, Illinois-based lender said income from continuing operations slumped 27 percent to $178.9 million.

Capital One Financial Corp., the Mclean, Virginia-based credit-card lender and bank, had to add $208.6 million to loss reserves and said it expects about $7.2 billion in soured loans in the next year. The firm reported profit from continuing operations of $1.03 a share, beating analysts' average estimate on a 19 percent rise in deposits.

American Express was ranked first by the total value of purchases and cash advances to U.S. cardholders in the first half of 2007, according to the Carpinteria, California-based Nilson Report, a trade publication. JPMorgan Chase & Co. and Bank of America Corp. are ranked second- and third-largest.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: October 20, 2008 19:18 EDT