Bloomberg News

AmEx Profit Increases on Record Card Spending, Defaults Improve

October 20, 2011

Oct. 20 (Bloomberg) -- American Express Co., the biggest credit-card issuer by purchases, posted a third-quarter profit that beat analysts’ estimates as customer spending climbed and fewer borrowers defaulted.

Net income advanced 13 percent to $1.24 billion, or $1.03 a share, from $1.09 billion, or 90 cents, a year earlier, the New York-based lender said yesterday in a statement. The average estimate of 23 analysts surveyed by Bloomberg was for earnings per share of 96 cents.

“Cardmember spending was strong during the period, growing 16 percent to record levels and again outpacing most of the major bank card issuers,” Chief Executive Officer Kenneth I. Chenault, 60, said in the statement. “Credit quality continued to be excellent.”

Chenault is expanding AmEx’s reach beyond its affluent credit-card clients with a new payment system for smartphones and computers as it vies for customers who prefer debit cards, the most-used U.S. payment method. The electronic wallet, called Serve, may draw more transactions to AmEx’s network, the world’s fourth-biggest. In June, the company introduced a no-fee prepaid card that also targets a broader client base.

Michael Taiano, an analyst at Sandler O’Neill in New York, said AmEx beat estimates, in part, by releasing $448 million in reserves that previously were set aside to cover future losses.

‘Decent Quarter’

“It’s a decent quarter; I think there are things for both the bulls and the bears to latch on to,” Taiano said in a phone interview. “They hit the revenue number pretty much right on the head, but the beat on the EPS was a little lower quality because you had a 6-cent tax benefit and a reserve release that also helped earnings.”

American Express fell 55 cents to close at $46.13 in New York and slid 0.7 percent at 6:38 p.m. in extended trading. The shares have advanced 7.5 percent this year.

The lender repurchased $750 million of its shares in the second quarter and $1.2 billion in the third quarter, Chief Financial Officer Daniel Henry said yesterday in a conference call with analysts. The Federal Reserve earlier this year allowed the company to buy back up to $2.3 billion of stock in 2011, leaving room for $350 million of additional repurchases in the fourth quarter, he said.

Write-offs for loans AmEx deemed uncollectible fell to 2.6 percent in the third quarter, from 5.1 percent last year, the company said in a financial supplement. Loans at least 30 days overdue, a signal of future defaults, fell to 1.5 percent from 2.5 percent.

Card Income

U.S. card income rose 23 percent year-over-year to $733 million, according to the statement. International card income climbed 53 percent to $221 million.

Worldwide card spending, or billed business, rose 16 percent to $207.7 billion, the company said. Individuals spent an average of $3,739, an increase of 12 percent from a year earlier, when AmEx had fewer cards outstanding.

“Given these strong growth rates, we expect to gain share again this quarter in the U.S.,” Henry said during the conference call.

Net revenue advanced 8.6 percent to $7.57 billion, according to the statement. Funds set aside to cover future loan losses fell 33 percent to $249 million.

Expenses climbed 13 percent to $5.6 billion as AmEx boosted investments in rewards programs and other initiatives, the company said.

“The growth in operating expenses moderated this quarter, as planned, and we expect to further slow that growth toward the end of this year and into next,” Chenault said.

AmEx handled 3.91 percent of 120.4 billion purchase transactions worldwide last year as it was supplanted as the third-biggest network by Shanghai-based China UnionPay Co., which boosted its market share to 4.03 percent, according to the Nilson Report, an industry newsletter. San Francisco-based Visa Inc. had 66.01 percent of the market, compared with 25.18 percent for MasterCard Inc., based in Purchase, New York.

--With assistance from Margaret Collins in New York. Editors: Peter Eichenbaum, Dan Reichl

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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