New York - American Express said on Monday that its profit tumbled 79% in the fourth quarter as cardmembers cut back their spending amid the harsh economy and the company took a big severance-related charge.
This marks the fifth-straight quarter of profit declines at American Express - a credit card company that has prided itself on catering to a more affluent clientele - proving that few have been spared from the pain of the recession.
The New York-based company also said it expects spending to continue to slow in 2009, and forecast for higher delinquencies and loan losses as consumers and businesses battle worsening economic trends. The outlook echoes remarks made by fellow credit card issuer Capital One Financial last week.
For the final three months of the year, AmEx earned $172m, or 15c per share, compared with earnings of $831m, or 71c per share, a year earlier.
Results included a $273m charge primarily related to severance costs from previously announced job cuts. That reduced earnings by 24c per share, the company said. Fourth-quarter results also included a charge of $66m, or 6c per share, related to an increase in the company's membership rewards reserve due to the extension of a partnership agreement with Delta Air Lines. Year-ago results included a 45c-per-share gain from a settlement with Visa and various one-time charges totaling 60c per share.
On an adjusted basis, excluding discontinued operations, the company earned $238m, or 21c per share.
Analysts polled by Thomson Reuters were expecting earnings of 22c per share. Analysts typically exclude one-time items from their estimates.
Disappointed
"We're clearly disappointed with our overall results," Kenneth Chenault, chairperson and chief executive, said during a call with investors. However, he stressed that the declines in spending, while significant, compared favourably to what competitors in the industry are facing.
Total revenue declined 11% to $6.51b from $7.32bn, missing analysts' forecast of $7.22bn.
American Express' shares added 49c, or 3.2%, to $15.69 in after-hours trading, having closed the regular session at $15.20.
During the quarter, AmEx set aside $1.4bn to cover bad loans, down slightly from the $1.45bn set aside in the prior-year period when the company took a $274m credit-related charge.
In the company's US card segment, net income fell to $4m from $7m, as total revenue decreased 13%.
Average basic cardmember spending declined 13% to $2 758 from $3 161.
The international segment held up better in the fourth quarter, the company said, with net income falling 8% to $36m. Average cardmember spending slipped 2% on a foreign exchange adjusted basis.
Adil Moussa, an analyst at Boston-based research firm Aite Group, said the international results were encouraging, but he warned of further deterioration to come.
"What happens in the US is going to happen outside of the US in a year or so," he said, referring to American consumers' pullback in spending.
Plans to launch deposit programme
The fourth quarter saw American Express transform itself into a bank holding company - a surprise move that signalled to investors just how severe the credit card giant's troubles had become.
In approving AmEx's request for bank holding company status, the Federal Reserve cited "emergency conditions."
Funding its daily operations had become more difficult and more costly amid the credit crisis. The securitisation market, which AmEx uses to raise operating capital, has dried up as investors shy away from purchasing all but the safest forms of debt.
As a bank holding company, AmEx can now accept deposits and permanently access financing from the Fed. The status change also enabled AmEx to tap into the government's $700bn financial bailout package. In January, the company received a $3.4bn investment from the US Treasury Department in the form of a preferred stock purchase.
Additionally, AmEx said it raised $6.2bn through a new retail certificate of deposit programme it launched in October.
As a result of the additional capital, the company's total capital to total managed assets was 7.9% at the quarter's end, up from 6.7% at the end of 2007.
AmEx said it remains committed to growing its deposit base and plans to launch a direct deposit programme in the second quarter.
In October, AmEx announced plans to cut 7 000 jobs, or about 10% of its global work force, in an effort to slash costs by $1.8bn this year.
For the full year, the company said net income fell 34% to $2.63bn, or $2.27 per share, from $4.01bn, or $3.36 per share. Revenue rose 3% to $28.37bn.
- AP