AmEx Profit Increases as Spending Rises, Defaults Improve

April 18 (Bloomberg) -- American Express Co., the biggest credit-card issuer by purchases, reported a 6.7 percent increase in first-quarter profit as customer spending climbed and the lender posted the industry’s lowest default rates. Deirdre Bolton reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

American Express Co. (AXP), the biggest credit-card issuer by purchases, said profit climbed 6.7 percent in the first quarter as customer spending rose and the lender posted the lowest write-off rates in the industry.

Net income advanced to $1.26 billion, or $1.07 a share, from $1.18 billion, or 97 cents, a year earlier, the New York- based company said yesterday in a statement. That beat the average estimate of $1.01 a share by 22 analysts surveyed by Bloomberg. Net revenue climbed 8.3 percent to $7.61 billion.

AmEx, led by Chairman and Chief Executive Officer Kenneth I. Chenault, increased the dividend and is repurchasing shares after Federal Reserve stress tests showed the lender was among the best-equipped of 19 banks examined to withstand a severe recession. Write-offs for soured loans fell to an industry best 2.3 percent in the quarter from 3.7 percent a year earlier, AmEx said in a slide presentation.

“Higher cardmember spending, excellent credit metrics and disciplined expense management helped us to start 2012 with record first-quarter earnings and revenues,” Chenault, 60, said in the statement.

American Express fell 14 cents to $58.04 yesterday in New York and was little changed in extended trading after the results were announced. The shares had gained 23 percent this year, the fourth-best performance in the Dow Jones Industrial Average after Bank of America Corp., JPMorgan Chase & Co. and Home Depot Inc.

Photographer: Spencer Platt/Getty Images

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Photographer: Spencer Platt/Getty Images

Am American Express travel agency in New York City.

Dividend, Repurchases

AmEx boosted its quarterly dividend last month by 11 percent to 20 cents a share and said it may repurchase as much as $5 billion of its stock within the next year, including $4 billion in 2012.

The lender may use some of the money set aside for share buybacks to instead make acquisitions “if we identified the right opportunities,” Chief Financial Officer Dan Henry said yesterday in a conference call with analysts.

“It’s really a tradeoff between acquisition spending and buybacks,” Henry said. “The less we do in acquisitions, the more we will do in buybacks.”

First-quarter U.S. card income rose 35 percent to $752 million from a year earlier and international card income climbed 4 percent to $197 million, according to the statement.

Worldwide card spending, or billed business, rose 12 percent to $211.2 billion, the company said in a financial supplement. Individuals spent an average of $3,772, an increase of 10 percent from a year earlier, when AmEx had fewer cards outstanding. Total expenses rose 4 percent to $5.43 billion.

‘Credit Quality’

The firm set aside $412 million to cover future loan losses, up from $97 million in last year’s first quarter as “credit quality continued to be at historically strong levels,” according to the statement.

Amex accounted for 25 percent of $2.05 trillion in U.S. credit-card spending last year and almost a third of the industry’s $179.9 billion increase from 2010, according to the Nilson Report, an industry newsletter. New York-based JPMorgan had the second-biggest share of spending with 18 percent.

Chenault has sought to expand AmEx’s reach beyond the company’s affluent clients with a new payment system for smartphones and computers as it vies for customers who prefer debit cards. The electronic wallet, called Serve, may draw more transactions to the firm’s payments network, the fourth-biggest after Visa Inc. (V), MasterCard Inc. (MA) and China UnionPay Co.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

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

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