Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Wall Street is no longer giving Ken Chenault the benefit of the doubt.

Denied Credit
AmEx's shares have fallen to their lowest level since December 2012.
Source: Bloomberg

Shares of American Express plunged as much as 13.6 percent Friday after the company Chenault helms posted a steep decline in profit and weaker-than-expected guidance for 2016. That means it's trading at a forward price-to-earnings multiple of roughly 10.3, a signficant discount to its historical average of 13, according to data compiled by Bloomberg.

Chenault, who's been CEO at AmEx for 15 years, said the company is taking "significant actions" to change its trajectory. While focusing on cost cutting ($1 billion by the end of 2017), AmEx will make investments to grow its number of cardholders and merchants (helped in part by "big data"), and explore acquisitions that may boost growth.

All of that might not be enough to stop the bleeding.

Amex is fighting an onslaught of competition that is only going to get more fierce. First, there are digital combatants such as Paypal, which facilitate split-second payments with the push of a button. And then there are the host of banks and rival card issuers that are chipping away at AmEx's business partnerships by offering lower fees.

Slipping Away
Amid fierce competition, American Express has been struggling to lift its revenue growth.
Source: Bloomberg

Here's a scorecard: Citigroup and Visa are replacing AmEx as the issuer for Costco’s co-brand cards and U.S. Bancorp and Visa are displacing AmEx as the issuer for Fidelity's popular cash-back credit card, while JetBlue Airways broke up with AmEx in favor of Barclays and MasterCard. More bad news could follow: AmEx's partnership with Starwood Hotels & Resorts is likely at risk considering the hotelier's pending takeover by Marriott International, which is linked to JPMorgan Chase and Visa.  

Although Warren Buffett's Berkshire Hathaway, AmEx's biggest shareholder with a 15.4 percent stake, hasn't flinched, most investors aren't sticking around for fear the stock has further to fall. Even ValueAct Capital, an activist investor that amassed a small stake last spring, was quick to cut its losses. The fund dumped its stake late last year, CNBC reported Friday. 

Even excluding a steady stream of dividends, Berkshire is well in the money on AmEx: its stake is worth roughly $8.3 billion today, compared to its average cost of around $1.3 billion -- but it's far from the nearly $13 billion it was worth a year ago. Buffett has been a Chenault backer: At the 2015 Berkshire annual meeting, he layered praise on the AmEx chief, saying he's "done a sensational job anticipating" some trends and guiding the company into some markets.

It's nice to have Buffett in your corner, especially when analysts are saying you've overstayed your welcome  and investors are voting with their feet. But even that could change for Chenault, given that AmEx appears to be going nowhere fast. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net