Jan. 28 (Bloomberg) -- American Express Co., the third- largest U.S. credit-card network, said fourth-quarter profit fell 9.9 percent as it set aside more for customer defaults amid a slowing economy. The company declined in extended trading.

Net income was $831 million, or 71 cents a share, compared with $922 million, or 75 cents, a year earlier, the New York- based company said today in a statement. Profit matched the average estimate of 15 analysts surveyed by Bloomberg.

The report adds to evidence that bad debts are spreading in the U.S. from borrowers in the housing market to customers who owe money on credit cards and auto loans. Citigroup Inc., the biggest U.S. bank by assets, and Capital One Financial Corp. each doubled reserves for loan losses in the fourth quarter.

``American Express hasn't seen a significant change from the steep drop-off in spending from December, which doesn't bode well for the next several quarters,'' Patrick Schumann, analyst at Edward Jones & Co. in Des Peres, Missouri, said in an interview. ``Consumers are feeling the pinch from the housing slowdown.'' He rates the company ``buy.''

American Express fell $1.30, or 2.7 percent, to $46.10 in trading after the close of regular U.S. markets. Before the results were announced, the company rose $1.96, or 4.3 percent, to $47.40 in New York Stock Exchange composite trading today. The company has declined 18 percent in the past year.

``We are not immune from further deterioration in the economic and credit environment,'' Chief Executive Officer Kenneth Chenault said in the statement.

Credit Reserves

The firm took a $274 million after-tax charge in the quarter as it more than doubled the amount set aside for U.S. credit card losses to $1.14 billion from $530 million a year earlier. In the unit, 4.3 percent of loans were deemed uncollectible, compared with 3.7 percent in the third quarter. Purchases rose 16 percent from a year earlier to $177.5 billion and cardholder loans rose 22 percent to $77.2 billion.

Goldman Sachs Group Inc. and Merrill Lynch & Co. analysts cut their recommendations on American Express in the past two months on concern slower consumer spending will limit loans made by credit-card companies.

U.S. retailers' holiday sales gained 2.2 percent, the slowest pace in five years, according to the International Council of Shopping Centers. The U.S. jobless rate jumped to a two-year high of 5 percent in December.

American Express will lower marketing expenses to below 2007 levels because of its forecast for slower growth in transactions, the company said this month.

Residential `Spillover'

``Credit-card performance will noticeably deteriorate during the year, given spillover from residential mortgages, weaker economic trends, and higher levels of unemployment,'' Fitch Ratings said in a Jan. 10 report on the U.S. industry.

Discover Financial Services, the No. 4 network, has fallen about 44 percent since trading formally began in July after being spun off from Morgan Stanley. MasterCard Inc., which runs the second-biggest U.S. card network after Visa Inc., has surged 74 percent in the past year.

Discover and American Express are lenders that offer cards and run networks that process transactions for other issuers. MasterCard, reporting fourth-quarter results on Jan. 31, and Visa, planning an initial public offering this year, run only networks.

American Express cardholders spent an average $3,228 in the quarter, 8 percent more than a year earlier. The company added 11 percent more cardholders to 86.4 million.

Discount revenue, the fees collected from merchants when cardholders buy goods or services, climbed 13 percent to $3.91 billion.

Visa Settlement

American Express's earnings included a $1.13 billion payment from a $2.25 billion settlement on Nov. 7 with Visa Inc. American Express filed the lawsuit in November 2004, accusing the company of barring member banks from offering rival cards.

Revenue from the suit was largely offset by higher expenses from litigation, charitable contributions and its rewards program. The company expects to receive $70 million a quarter for the balance of the settlement, Chief Financial Officer Daniel Henry said today in a conference call. The money may be invested in advertising or used to boost earnings, he said.

Warren Buffett's Berkshire Hathaway Inc. is the largest American Express investor, owning 151.6 million shares, or 13 percent of outstanding stock as of Sept. 30, according to Bloomberg data.

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

Last Updated: January 28, 2008 19:34 EST