American Express beats forecasts, reporting lower delinquencies and charge-offs

Posted by: Jessica Silver-Greenberg on July 15

Credit card industry executives likely breathed a sigh of relief today as American Express, Wall Street’s favorite pet, reported that write-offs on credit cards actually beat expectations for the later part of 2009. Write-offs, which are loans so overdue that they move past delinquency into pure, unavoidable losses for the company, were expected to be far greater since unemployment threatens to break into double digits and the economy has yet to rebound.

Bloomberg.com reported today that debt collection costs also fell, from 10 percent in May to 9.9 percent in June. Now that’s not a huge reduction, but it signals that the record charge-offs and delinquencies that have battered the credit card industry over the past 18 months might be letting up.

American Express wasn’t the only card company with a glimmer of hope in its filings. JP Morgan Chase and Discover Financial Services also reported fewer rotten loans that had to be sloughed off their balance sheets. That’s good news for credit card companies that have seen record losses since 2007.

With unemployment at a 9.5% in June, the highest in over two decades, you would assume that credit card delinquencies would rise as well. If consumers are losing their jobs and struggling with the most basic bills, then they might not be able to scrounge together money to make even their monthly minimum credit card payments. But the news from American Express and other issues suggests that we may have witnessed the worst charge-offs already.

Another factor may be President Barack Obama’s much-heralded credit card bill, which reins in certain billing practices and effectively prevents credit card companies from generously offering low-rate credit only to hike fees and interest rates later. Before the legislation takes effect next year, credit card companies have been combing through their existing customer base to weed out the riskiest borrowers. As part of this process, some issuers, in an effort to tidy up their books, have been more willing to settle outstanding debts with consumers, leading to better write-off results this quarter.

Just last year, it seemed as if American Express’s charge-offs woes would only increase. The percentage of loans considered absolutely uncollectible had shot up by 50% since just a year earlier. Rattled, American Express started tightening its lending standards and scaling back credit lines for customers deemed risky. That purge may have buoyed results this time around.

Reader Comments

Strategery

July 15, 2009 05:13 PM

AMX is a terrible company. Not only did they beg for $3 billion in government bailout money, but they illegally raised interest rates and cut credit limits for their better customers. I will be closing my account soon, and I know I'm not alone. AMX had better clean up its act and diversify away from the credit card business, or it will be in bankruptcy court alongside its customers.

david wayne osedach

July 15, 2009 06:44 PM

This is good news from American Express. Their customers are more affluent and they are apparently good in paying their loans back

Pam

July 15, 2009 09:05 PM

If your total lifetime earnings is $2 million, and you pay cash for everything, then you'll end up spending the whole $2 million on yourself.

If your total lifetime earnings is $2 million, and you charge everything on a credit card you'll end up spending $1 million on yourself and spending the other $1 million on credit card interest payments.

screw amex

July 16, 2009 12:10 AM

What a bunch of scum bags. We face bankruptcy and they take public money. North Korea and the US are becoming more the same every day.

Ernesto

July 16, 2009 12:51 AM

AXP - SELL, their General Auditor is from Country Wide Mortgage!!!! How could she have missed all of their issue, well be be they are paying her minimim wage,

max buwaya

July 16, 2009 03:27 AM

AMX should better be cleaning up its act, or they should quit on credit card business for Fair credit reporting laws

Feeling Anti-AmEx

July 21, 2009 06:05 PM

I'm still mad about having $60k+ in credit approval reduced to $0 last night, just hours after charging $900 to my Skymiles card for a dentist appointment (3 fillings!). I only had activity on it for the last 60 days this year, and put all of $600 on it last year. I checked all three of my credit scores and they are all still near 800. I've been a cardholder in good standing for 19 years! Geez!!

phuck amex

July 30, 2009 07:59 PM

just got cancelled. Never late.

Mark

August 25, 2009 10:17 PM

They just doubled my interest rate for no reason, is this legal. I've never been late.

This makes me not want to pay them at all, screw them I own my house and my car why do I need good credit!

They received money from the government and now their screwing good customers.

Everyone should max out their cards and then don't pay, that's what they deserve.

How could this be legal, who is making these laws.

Thank you for your interest. This blog is no longer active.

 

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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