In a sign that even wealthier consumers are feeling the pinch of the credit crisis, American Express Co said its second-quarter profit tumbled as it set aside more money to cover souring loans across all its portfolios.
The credit card lender, known for catering to the US elite, said late on Monday that its second-quarter earnings fell 38 percent, well below Wall Street’s expectations.
The effects of the weakening economy were evident even among its more established members with excellent credit.
“Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations,” American Express chairman and CEO Kenneth Chenault said.
FALLOUT
“The scope of the economic fallout was evident even among our longer term, superprime cardmembers,” Chenault said.
The company’s shares dropped US$4.65, or 11.4 percent, to US$36.25 in aftermarket trading. They are down about 21 percent for the year.
For the period ended June 30, American Express reported net income of US$653 million, or US$0.56 per share, compared with US$1.06 billion, or US$0.88 per share, in the year-ago period.
Analysts, on average, expected earnings of US$0.83 per share, according to Thomson Financial.
Chenault said in a statement that fallout from the weakening economy accelerated last month with consumer confidence dropping, unemployment rates rising and home prices falling at “the fastest rate in decades.”
PROBLEMS
In a conference call with analysts, American Express executives said the company had begun to notice problems even among cardholders with credit scores ranging from 650 to 750, and those who hold mortgages on multiple properties. As a general rule, those with a credit score above 650 receive the lowest interest rates.
The pinch felt by American Express’ superprime cardholders mirrors a similar trend among borrowers at JPMorgan Chase & Co.
The bank said last week that even its more creditworthy borrowers were failing to make their mortgage payments — the charge-off rate for prime mortgages nearly doubled from the first quarter to the second.
JPMorgan CEO Jamie Dimon said he expected those losses could triple during the remainder of the year.
If economic conditions worsen, American Express said it would be forced to add to its credit reserves.
Quarterly revenue rose 8 percent to US$7.48 billion, slightly below analysts’ estimate of US$7.6 billion. Revenue was boosted by strong growth in the company’s international card services segment, as well as its global network and merchant services division and global commercial services unit.
Revenue from its international card services division increased 20 percent to US$1.3 billion thanks to higher cardmember spending and borrowing.
American Express no longer forecasts long-term earnings per share growth of between 4 percent and 6 percent, based on expectations of continued economic uncertainty and higher write-off levels. The company expects third and fourth-quarter write-off rates to be higher than last month’s levels.
The lender also hinted at various cost-trimming initiatives, including possible job cuts, that would result in restructuring charges in the second half of the year.
DEFENDING DEMOCRACY: Taiwan shares the same values as those that fought in WWII, and nations must unite to halt the expansion of a new authoritarian bloc, Lai said The government yesterday held a commemoration ceremony for Victory in Europe (V-E) Day, joining the rest of the world for the first time to mark the anniversary of the end of World War II in Europe. Taiwan honoring V-E Day signifies “our growing connections with the international community,” President William Lai (賴清德) said at a reception in Taipei on the 80th anniversary of V-E Day. One of the major lessons of World War II is that “authoritarianism and aggression lead only to slaughter, tragedy and greater inequality,” Lai said. Even more importantly, the war also taught people that “those who cherish peace cannot
STEADFAST FRIEND: The bills encourage increased Taiwan-US engagement and address China’s distortion of UN Resolution 2758 to isolate Taiwan internationally The Presidential Office yesterday thanked the US House of Representatives for unanimously passing two Taiwan-related bills highlighting its solid support for Taiwan’s democracy and global participation, and for deepening bilateral relations. One of the bills, the Taiwan Assurance Implementation Act, requires the US Department of State to periodically review its guidelines for engagement with Taiwan, and report to the US Congress on the guidelines and plans to lift self-imposed limitations on US-Taiwan engagement. The other bill is the Taiwan International Solidarity Act, which clarifies that UN Resolution 2758 does not address the issue of the representation of Taiwan or its people in
The Philippines yesterday criticized a “high-risk” maneuver by a Chinese vessel near the disputed Scarborough Shoal (Huangyan Island, 黃岩島) in a rare incident involving warships from the two navies. The Scarborough Shoal — a triangular chain of reefs and rocks in the contested South China Sea — has been a flash point between the countries since China seized it from the Philippines in 2012. Taiwan also claims the shoal. Monday’s encounter took place approximately 11.8 nautical miles (22km) southeast” of the Scarborough Shoal, the Philippine military said, during ongoing US-Philippine military exercises that Beijing has criticized as destabilizing. “The Chinese frigate BN 554 was
Taiwanese Olympic badminton men’s doubles gold medalist Wang Chi-lin (王齊麟) and his new partner, Chiu Hsiang-chieh (邱相榤), clinched the men’s doubles title at the Yonex Taipei Open yesterday, becoming the second Taiwanese team to win a title in the tournament. Ranked 19th in the world, the Taiwanese duo defeated Kang Min-hyuk and Ki Dong-ju of South Korea 21-18, 21-15 in a pulsating 43-minute final to clinch their first doubles title after teaming up last year. Wang, the men’s doubles gold medalist at the 2020 and 2024 Olympics, partnered with Chiu in August last year after the retirement of his teammate Lee Yang
RSS