AMERICAN Express Co profit slumped nearly 10 percent in the fourth quarter as it set aside more money to prepare for cardholder defaults, it said yesterday.
American Express' customers tend to spend more and have stronger credit histories than the average cardholder, so the company looks better shielded against a tough 2008 than many other lenders. Still, investors appeared concerned that AmEx is girding for deteriorating credit conditions and slower United States spending.
American Express shares fell 2.7 percent in after-market trading, having risen US$1.96, or 4.3 percent, to close at US$47.40 on Monday. Last week, its shares hit a four-year low.
The credit-card issuer posted net income of US$831 million, or 71 cents a share, down 9.9 percent from US$922 million, or 75 cents a share, in the previous year's fourth quarter.
Total revenue rose 10 percent to US$6.42 billion from US$5.84 billion in the previous fourth quarter. Excluding interest expenses, revenue came to US$7.36 billion, up from US$6.68 billion a year ago.
The profit results were largely in line with the market's expectations, but sales fell a bit short. Analysts surveyed by Thomson Financial had predicted earnings of 71 cents a share on revenue of US$7.85 billion.
The sale a year ago of American Express Bank Ltd contributed to the tough year-on-year comparison. But the fourth quarter of 2007 did get a US$1.13-billion boost from American Express' settlement with Visa Inc over Visa's alleged stifling of competition.
Profit in American Express' US card services segment fell to US$7 million in the fourth quarter from US$473 million, and its international card segment posted a loss of US$68 million, compared with a profit of US$99 million in the previous year.
For the full year, the company posted net income of US$4.01 billion, up 8.1 percent from US$3.71 billion in 2006, and revenue of US$24.14 billion, up from US$22.16 billion in 2006.
As people struggle to pay their mortgages and keep up with rising energy and food costs, more are failing to make their card payments - particularly in regions such as California, Florida, Ohio and Michigan. Rising bankruptcy rates from last year's unusually low levels are also boosting defaults.
In US cards, American Express warned earlier this month that it would take a US$438-million charge for rising write-off and delinquency rates.