AmEx Profit Meets Estimates as Card-Spending Growth Slows

AmEx Profit Matches Estimates as Card Spending Growth Slows
American Express Co. rose 1.3 percent to $59.37 at 4 p.m. in New York. Photographer: Andrew Harrer/Bloomberg

American Express Co., the biggest credit-card issuer by purchases, reported a third-quarter profit that matched analysts’ estimates as card-spending growth slowed.

Net income rose 1.2 percent to $1.25 billion, or $1.09 a share, from $1.24 billion, or $1.03, a year earlier, the New York-based lender said yesterday in a statement. That met the average per-share estimate of 26 analysts surveyed by Bloomberg.

“We generated solid results this quarter against the backdrop of a very uneven global economy,” Chairman and Chief Executive Officer Kenneth I. Chenault, 61, said in the statement. A 6 percent increase in worldwide customer spending from the same period in 2011 “represents slower growth than we were generating earlier in the year,” he said.

AmEx, facing increased competition for its base of affluent spenders, has sought to enhance the value of its global payments network. Last week, the firm said its Bluebird prepaid debit card would be sold by Wal-Mart Stores Inc. at more than 4,000 locations across the U.S and online. The partnership may help the lender capitalize on new U.S. rules for standard debit cards that are squeezing rivals including JPMorgan Chase & Co.

American Express fell 0.6 percent to $59 as of 7:30 p.m. yesterday in extended trading in New York. The shares gained 26 percent this year through the close of regular trading, compared with a 25 percent advance for the 81-company Standard & Poor’s 500 Financials Index.

‘Not Immune’

“Looking ahead, we recognize that our business is not immune to the economic environment, but we continue to believe our business model is well-positioned for the challenges ahead,” Chief Financial Officer Daniel Henry said during a conference call.

The lender said it set aside $479 million to cover future loan losses, a 92 percent increase from the same period a year earlier. Total revenue climbed 3.8 percent to $7.86 billion, short of the $7.89 billion average estimate of analysts in the Bloomberg survey.

Expenses fell 2 percent to $5.5 billion from a year earlier as the company reduced costs from rewards programs, marketing and compensation, AmEx said.

American Express probably will book a fourth-quarter charge tied to a change in how the lender calculates the redemption rate for credit-card rewards, said Henry, who didn’t disclose how big the expense would be. The current redemption rate is 93 percent, he said.

“At this juncture, we haven’t evolved the models to a sufficient degree to have a reliable estimate,” he said.

Future Defaults

Write-offs for loans AmEx deems uncollectible declined in September to 1.9 percent from 2 percent in August, the lender said in a regulatory filing this week. Loans at least 30 days overdue, a signal of future defaults, climbed to 1.3 percent from 1.2 percent.

Third-quarter U.S. card income fell 4.6 percent to $699 million from a year earlier and international card income slid 26 percent to $164 million, according to the statement.

Worldwide card purchases, or billed business, rose 6 percent to $220.1 billion, American Express said in a financial supplement. The average customer spent $3,885 in the third-quarter, a 3.9 percent increase from a year earlier, when the firm had fewer cards outstanding. Loans to customers who carry card balances climbed 6 percent to $61.8 billion.

Swipe Fees

The deal announced last week with Bentonville, Arkansas-based Wal-Mart gives AmEx a chance to benefit from U.S. caps on debit-card “swipe” fees that have cut annual revenue for the biggest banks by about $8 billion and prompted some lenders to charge customers for checking accounts. Congress, in passing the fee limits as part of the 2010 Dodd-Frank Act, exempted reloadable prepaid cards such as AmEx’s Bluebird.

The product, which is pre-loaded with a customer’s own funds, can be used like a debit card anywhere American Express is accepted and will include services such as direct deposit, automatic bill pay and remote check capture via smartphone, the companies announced Oct. 8.

American Express 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.

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