AmEx Posts Record Profit as Card Spending Rises, Defaults Ease

American Express Co. (AXP), the biggest credit-card issuer by customer spending, said first-quarter profit increased 33 percent as consumer purchases surged and the firm slashed the funds set aside to cover bad loans.

Net income was $1.18 billion, or 97 cents a share, compared with $885 million, or 73 cents, a year earlier, the New York- based lender said yesterday in a statement. The average estimate of 20 analysts surveyed by Bloomberg was 92 cents.

“Record earnings this quarter reflect credit quality and billed business trends that are among the best we’ve seen,” Chairman and Chief Executive Officer Kenneth I. Chenault, 59, said in the statement. “After several years of decline, our lending portfolio leveled off and total revenues grew at the healthiest pace since before the recession.”

AmEx hasn’t offered debit cards, the most-used payment method. Instead, Chenault is expanding AmEx’s reach beyond affluent credit-card clients with a new payment system for smartphones and computers. The system, called Serve, may draw more transactions to AmEx’s global network, the fourth-biggest after Visa Inc. (V), MasterCard Inc. (MA) and China UnionPay Co.

American Express climbed 36 cents to $47 in New York Stock Exchange composite trading yesterday before the announcement, and has advanced 9.5 percent this year. It declined to $46.37 at 6:56 p.m. New York time in extended trading.

The company set aside $97 million to cover future loan losses, a 90 percent drop from the same period in 2010, according to the statement. The firm also released $725 million from an account to cover soured loans.

Write-offs Decline

Write-offs for loans AmEx deemed uncollectible fell in March to 3.7 percent, the company said in an April 15 regulatory filing. Overdue payments, a signal of future defaults, dropped to 1.8 percent, the lowest of the six largest U.S. credit-card issuers. JPMorgan Chase & Co. (JPM), the biggest card lender, reported the second-lowest delinquency rate at 3.08 percent.

The company will resume share repurchases in the current quarter and aims to return about 50 percent of earnings to shareholders through dividends or stock buybacks, Chief Financial Officer Daniel Henry said yesterday in a conference call with analysts.

“We have terrific earnings power to create free cash flow,” he said.

U.S. card income rose 34 percent to $555 million from the same period a year earlier, according to AmEx. International card income climbed 36 percent to $189 million.

Worldwide card spending, or billed business, increased 17 percent to $187.9 billion, according to an earnings supplement. Customers spent an average of $3,438, a 14 percent increase from a year earlier, when AmEx had fewer cards outstanding.

First-quarter revenue advanced to $7.03 billion from $6.56 billion a year earlier, the company said in the statement.

AmEx handled 3.91 percent of 120.4 billion purchase transactions worldwide last year. The firm was supplanted as the third-biggest card network by Shanghai-based UnionPay, which boosted its market share to 4.03 percent, according to the Nilson Report, an industry newsletter. Visa, based in San Francisco, had 66 percent of the market, compared with 25 percent for Purchase, New York-based MasterCard.

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

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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