Oct. 23 (Bloomberg) -- American Express Co., the biggest U.S. credit-card issuer by purchases, posted profit that exceeded most analysts’ estimates and said the recession may be nearing an end.

Third-quarter income from continuing operations fell 25 percent to $642 million, or 54 cents a share, from $861 million, or 74 cents, in the same period last year, the New York-based lender said yesterday in a statement. Excluding a one-time accounting change, the profit was 44 cents a share, beating the 38-cent average estimate of 20 analysts surveyed by Bloomberg.

“While there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in card-member spending are encouraging and there are signs that the recession may be approaching an end,” Chief Executive Officer Kenneth Chenault said in the statement.

Chenault signaled increasing confidence in the economic climate during the third quarter when he told his staff on Sept. 24 he’s reversing pay cuts imposed eight months ago. Card write- offs fell in September for the fifth straight month. Capital One Financial Corp., the card lender based in McLean, Virginia, also beat estimates by posting a 14 percent profit increase.

Total card spending at AmEx rose to $156.6 billion in the third quarter, from $151.4 billion in the preceding three-month period. Cardholders spent an average of $2,898, up from $2,712 in the quarter ended June 30.

Stock Price

American Express, this year’s top performer in the Dow Jones Industrial Average, fell 24 cents to $36.20 in early New York trading today after analysts John McDonald at Sanford C. Bernstein & Co. and Scott Valentin at FBR Capital Markets Inc. said the stock was fully valued. The shares have gained 96 percent in 2009, compared with 15 percent for the Dow.

Capital One rose as much as 9.6 percent to $42 in early trading, above Valentin’s price target. “We recommend that investors not chase the stock at these levels,” he wrote to clients.

AmEx said revenue fell 16 percent to $6.02 billion. U.S. card income fell 55 percent to $109 million from $244 million in the third quarter last year. International card income surged 90 percent to $127 million.

The company cut 1,500 jobs, or 3 percent of its global workforce, leaving it with 59,200 employees. The lender slashed marketing expenses by $807 million, or 17 percent, compared with the same period last year. Salaries and employee benefits fell $204 million, or 14 percent.

Job Cuts

Chenault had said he would eliminate about 11,000 jobs, or 17 percent of the workforce, in the past year as part of a $2.6 billion “re-engineering” plan and slashed marketing expenses as the recession squeezed profit. As defaults eased, the company began to redirect $1.5 billion of those savings toward marketing and investments, Chief Financial Officer Daniel Henry said during a conference call with analysts.

Provisions for losses fell 13 percent to $1.2 billion, AmEx said. Results included a $113 million one-time accounting benefit. Net income fell 21 percent to $640 million.

Annualized credit-card write-offs last month dropped to 8.4 percent after climbing as high as 10.1 percent in April, American Express said in an Oct. 15 federal filing. Loans at least 30 days overdue held steady at 4.1 percent. AmEx was the only one among the six biggest U.S. card lenders, including JPMorgan Chase & Co. and Citigroup Inc., that didn’t report higher defaults or delinquencies.

Unemployment Rate

Rising U.S. unemployment still threatens to squeeze profit, even after AmEx posted five straight monthly declines in credit- card defaults, Michael Taiano, an analyst at Sandler O’Neill & Partners LP, wrote before earnings were released. Card write- offs typically track the U.S. jobless rate, which climbed to 9.8 percent last month, and economists surveyed by Bloomberg project it will reach 10 percent by the first quarter of 2010.

“We’re weathering the storm, but the storm is not over and we continue to face several significant risks,” Capital One CEO Richard Fairbank said in a conference call with analysts. “While the pace of deterioration appears to have slowed, labor markets have yet to actually improve.”

To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

Last Updated: October 23, 2009 09:27 EDT