American Express Co., the biggest credit-card issuer by purchases, dropped after second-quarter revenue missed some estimates and a European Union plan to cap fees sparked concern the lender would face price competition.
American Express slid 3.2 percent to $74.37 at 2:26 p.m. in New York, the second-worst performance in the Dow Jones Industrial Average. The stock has climbed 29 percent this year.
The European Commission, the 28-nation EU’s executive arm, will propose that so-called swipe fees, or interchange, paid by retailers on bank-card transactions be capped at 0.2 percent for debit payments and 0.3 percent for credit, according to draft plans obtained yesterday by Bloomberg News. The proposal wouldn’t affect much of American Express’s business, the New York-based lender said in a statement.
“It’s giving investors pause,” Jason Arnold, an analyst at RBC Capital Markets who rates the stock “underperform,” said in a telephone interview. The plan could force AmEx to reduce the fees it charges merchants, already among the industry’s highest at about 2.5 percent, as the caps would make its cards even more expensive compared with rivals.
AmEx “could lose network volume if merchants steer consumers toward lower-cost payment options,” he wrote in a research report today.
American Express reported record second-quarter profit yesterday. Net income rose 4.9 percent to $1.41 billion, or $1.27 a share, from $1.34 billion, or $1.15, a year earlier, according to a statement. Net revenue rose 3.5 percent to $8.25 billion, missing the $8.28 billion average estimate of analysts surveyed by Bloomberg.
James Friedman, an analyst at Susquehanna Financial Group LLP, said the “excellent quarter” isn’t enough to support the stock’s valuation and cut his rating of the company from positive to neutral. He also cited the risk the European Commission’s plan could pose to earnings.
“There’ll be an indirect impact, but that’s something again that will be very dependent on what the final rules actually say and how we need to react in the marketplace,” Daniel Henry, American Express’s chief financial officer, said yesterday on a conference call with analysts. “It’s hard to really specifically say what’s going to happen because we don’t even know what the draft rules are exactly nor what the final rules what will be.”
The European Commission has said that it will publish the plans on July 24. They would require approval by governments and the European Parliament before they take effect.