American Express Q4 profit tumbles; tops estimates

New York: American Express Co said on Monday its fourth-quarter earnings tumbled 72 per cent due to higher loan losses, lower customer spending and a strengthening US dollar, but results beat expectations as it slashed costs.

The company's shares rose 2.5 per cent in after-market trading after falling 5 per cent when the market was open. Revenue fell 11 per cent, and the company cautioned that 2009 would be a tough year.

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"This is one of the most difficult operating environments we have seen in decades. The housing market has continued to deteriorate, unemployment has risen significantly, and retailers have seen some of the biggest declines in many years," said Kenneth Chenault, chief executive of American Express, in a conference call with analysts.

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The company offered a guarded forecast for this year. "Card member spending in this environment is likely to remain very soft and we continue to expect past due loans and write-offs to rise from current levels", said Dan Henry, chief financial officer of American Express.

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In the fourth quarter, earnings from continuing operations sank to $238 million, or 21 cents per diluted share, from $858 million, or 74 cents per diluted share, in the same quarter last year.

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The latest results topped the average analyst expectation of 9 cents per share for earnings from continuing operations, according to Reuters Estimates.

Net income, including discontinued operations, fell to $172 million, or 15 cents per diluted share, from $831 million, or 72 cents per diluted share, a year earlier.

The company, struggling with mounting credit losses and higher November to get access to $3.39 billion in taxpayer money under the US Treasury's $700 billion Troubled Asset Relief Program.

Revenues sink, credit losses jump

Consolidated revenue fell 11 per cent to $6.5 billion, hit by higher financial costs and lower travel commissions and fees. In addition, managed loans fell 7 per cent to $72 billion, as the company cut back lending to cushion credit losses.

Average cardmember spending tumbled 13 per cent in the United States -- the company's main source of revenue -- and 16 per cent in the international markets as the global economy deteriorated.

"The business in terms of spending and credit quality was pretty weak. Revenues were shockingly weak," said John Williams, an analyst at Macquarie Research. "AmEx for years and years called itself a spend center business and when spending is weak the business results are going to be weak. The effect of falling spending is difficult results for the company."

US net charge-offs -- a measure of bad loan write-offs -- jumped to 6.7 per cent in the fourth quarter from 5.9 per cent in the third quarter, and is expected to keep rising in 2009 as Americans struggled with a deepening recession and the highest US unemployment rate since 1993.

Provisions for loan losses fell 3 per cent to $1.4 billion, as American Express said the year-ago results included a significant credit charge, but analysts expressed concern about whether the company was setting enough money aside to cover losses.

"The magnitude of their reserves seems to imply that they don't expect things to get worse, but their comments indicate they do think things are going to get worse," Williams said.

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American Express cut expenses aggressively -- cardmember rewards expenses fell 39 per cent and marketing and promotion expenditure fell 35 per cent -- as the bank looks to save $1.8 billion this year.

American Express shares rose to $15.58 in after-hours trading after closing at $15.20, down 5 per cent on the New York Stock Exchange. The company's stock has fallen 14 per cent in 2009.