American Express Co. (AXP), the biggest credit-card issuer by purchases, said profit increased as spending by its customers climbed to a record and the firm trimmed funds to cover bad loans.
Second-quarter net income from continuing operations climbed 27 percent to $1.3 billion, or $1.07 per share, from $1.02 billion, or 84 cents, in the same period a year earlier, the New York-based lender said yesterday in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for 99 cents per share. Net income including discontinued operations increased 31 percent to $1.33 billion.
“While loan growth has been hard to come by, spending has picked up at most issuers over the past several quarters, particularly at the high end of the market” where AmEx is the industry leader, Goldman Sachs Group Inc. analysts led by Ryan Nash wrote in a July 19 research note.
U.S. card issuers including AmEx, JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) are boosting profit as fewer borrowers default, allowing banks to curb funds they set aside for future loan losses. JPMorgan released $1 billion in loan-loss reserves in the second quarter as card profit surged 166 percent to $911 million. Bank of America’s card income climbed 152 percent to $2.04 billion as write-offs fell for a seventh straight period.
“Results for the quarter reflect the continuation of the positive business trends evident during the last several quarters,” American Express Chief Financial Officer Daniel Henry said in a conference call with analysts.
Chairman and Chief Executive Officer Kenneth I. Chenault, 60, is expanding AmEx’s reach with a new Internet payments system as the firm vies to attract more customers beyond its base of affluent clients. The electronic wallet, called Serve, may draw transactions to AmEx’s global network, the fourth biggest after Visa Inc. (V), MasterCard Inc. (MA) and China UnionPay Co.
“Cardmember spending was at an all-time high,” Chenault said in the statement. “The underlying momentum across the company once again gave us the flexibility to make substantial investments in business-building initiatives.”
Worldwide card spending, or billed business, rose 18 percent to $207.6 billion, AmEx said in an earnings supplement. Individuals spent an average of $3,767 during the quarter, an increase of 11 percent from a year earlier, when AmEx had fewer cards outstanding.
Total revenue increased 12 percent to $7.62 billion from a year earlier, exceeding analysts’ estimates. U.S. card income rose 29 percent to $665 million and international card income climbed 4 percent to $161 million.
American Express, the second-best performer this year in the Dow Jones Industrial Average after International Business Machines Corp. (IBM), climbed 28 cents to $52.09 yesterday in New York. The stock has advanced 21 percent in 2011.
Write-offs for loans deemed uncollectible fell to 2.7 percent in June, from 3.2 percent in the previous month, AmEx said in a July 15 regulatory filing. Accounts at least 30 days overdue, a signal of future defaults, dropped to 1.5 percent, the lowest of the six-biggest U.S. credit-card issuers.
Funds set aside to cover future loan losses dropped 45 percent to $357 million from the second quarter of 2010, AmEx said in the statement.
Expenses surged 21 percent to $5.5 billion from $4.6 billion in the same period a year earlier as the company spent more money on rewards programs and invested in new projects, the lender said.
“We have a plan to slow the growth in operating expense as we exit this year and into 2012,” Henry said during the conference call.
AmEx handled 3.91 percent of 120.4 billion purchase transactions worldwide last year as it 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 66.01 percent of the market, compared with 25.18 percent for Purchase, New York-based MasterCard.
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