| American Express Third Quarter Revenues Rise; Earnings Decline on Increased Credit Provisions |
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21/10/2008 01:47 (476 Day 20:29 minutes ago) | |||||
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The FINANCIAL -- American Express Company (NYSE: AXP) on October 20 reported third-quarter income from continuing operations of $861 million, down 23 percent from $1.1 billion a year ago. Diluted earnings per share from continuing operations were $0.74, down 21 percent from $0.94 a year ago.
Net income totaled $815 million for the quarter, down 24 percent from a year ago. On a per-share basis, net income was $0.70, down 22 percent from $0.90 a year ago.
Consolidated revenues net of interest expense rose 3 percent to $7.2 billion, up from $7.0 billion a year ago.
Consolidated expenses totaled $4.7 billion, up 4 percent from $4.5 billion a year ago.
Consolidated provisions for losses totaled $1.4 billion, up 51 percent from $905 million a year ago.
The Company's return on average equity (ROE) was 27.8 percent, down from 38.2 percent a year ago.
"While we continued to generate a substantial level of earnings this quarter, bottom line results were down from a year ago as growth in Cardmember spending slowed, lending volumes moderated, and we set aside significant additions to our loan loss reserves," said Kenneth I. Chenault, chairman and chief executive officer.
"We saw clear signs earlier this year of a weakening environment and the recent volatility in the financial markets has reinforced our view that consumer and business sentiment is likely to deteriorate further, translating into weaker economies around the globe well into 2009. Cardmember spending is likely to remain soft. Loan growth will be restrained, in part because of the steps we are taking to reduce credit risks, and credit indicators are likely to reflect the continued downturn in the economy and throughout the housing sector.
"Against this backdrop, we are moving ahead with reengineering plans that will free up resources by reducing operating costs and staffing levels. We expect to complete aspects of this work shortly and, as indicated earlier, to recognize a restructuring-related charge in the fourth quarter to cover the costs of these actions.
"Our business model is well positioned to generate earnings and excess capital even in an economic environment that is likely to be among the weakest in many years. We believe we have the capital strength, funding resources and comprehensive liquidity plans to manage successfully through difficult market conditions.
"We remain confident in our ability to emerge from the downturn in a stronger competitive position and continue to see growth opportunities in the payments sector. For now, though, we plan to be very selective with our investment dollars, balancing near term performance with longer term profitability."
Discontinued operations
Discontinued operations for the third quarter generated a loss of $46 million compared with a loss of $55 million during the year-ago period, which primarily reflected the results of American Express International Deposit Company, an affiliate of the former American Express Bank anticipated to be sold in the third quarter 2009.
U.S. Card Services reported third-quarter net income of $244 million, down from $592 million a year ago.
Revenues net of interest expense for the third quarter decreased 4 percent to $3.5 billion, driven by lower securitization income, net. This decrease was partially offset by higher net interest income and higher Cardmember spending.
Total expenses increased 6 percent. Marketing, promotion, rewards and Cardmember services expenses increased 5 percent from the year-ago period reflecting increased rewards and costs of Cardmember services, which were partially offset by lower investments in marketing and promotion. Human resources and other operating expenses increased 7 percent from the year-ago period primarily driven by investments in technology and increased credit and collection costs.
Provisions for losses increased to $941 million, up from $638 million a year ago, reflecting increased write-off and past due rates driven by the impact of the economic slowdown. On a managed basis(1) the net loan write-off rate was 5.9%, up from 5.3% in the second quarter and 3.0% a year ago. Owned net write-offs were 6.1% in the quarter, up from 5.8% in the second quarter and 3.0% a year ago.
International Card Services reported third-quarter net income of $67 million, down 52 percent from $140 million a year ago.
Revenues net of interest expense increased 11 percent to $1.2 billion, reflecting higher Cardmember spending and borrowing.
Total expenses increased 13 percent reflecting higher volumes and business-building investments. Human resources and other operating expenses increased 16 percent from year-ago levels due to higher human resources expense, greater professional services expense and increased other operating expenses. Marketing, promotion, rewards and Cardmember services expenses increased 10 percent reflecting greater marketing and promotion expenses and higher volume related rewards costs.
Provisions for losses rose to $316 million, from $197 million a year ago reflecting higher past due and write-off rates as well as loan and business volume growth.
Global Commercial Services reported third-quarter net income of $134 million compared to $135 million a year ago.
Revenues net of interest expense increased 13 percent to $1.2 billion, reflecting higher spending by corporate Cardmembers as well as increased travel commissions and fees.
Total expenses increased 14 percent. Human resources and other operating expenses increased 12 percent from the year-ago period. Marketing, promotion, rewards and Cardmember services expenses increased 31 percent from the year-ago period primarily reflecting a reallocation of rewards costs from U.S. Card Services.
Both the revenue and expense growth rates were affected by the acquisition of a commercial card and corporate purchasing unit in March 2008.
Provision for losses totaled $60 million up from $42 million in the year ago period due to higher write-offs and past due rates.
Global Network & Merchant Services reported third-quarter net income of $258 million, down 3 percent from $266 million a year ago.
Revenues net of interest expense for the third quarter increased 9 percent to $1.1 billion. The increase reflected continued growth in merchant-related revenue, primarily from higher company-wide billed business and higher revenues from Global Network Services’ bank partners.
Spending on Global Network Services cards increased 29 percent from year-ago levels, reflecting growth in spending on cards issued by bank partners. Cards-in-force issued by bank partners increased 25 percent.
Total expenses increased 11 percent, reflecting higher human resources costs driven in part by an expansion of the merchant sales force.
Provision for losses increased to $43 million from $23 million in the prior year reflecting greater merchant-related provisions in the third quarter of 2008 compared to a year ago.
Corporate and Other reported a third-quarter net gain of $158 million, compared with a net loss of $11 million from a year ago. The net gain reflects the recognition of $220 million ($136 million after-tax) for the previously announced MasterCard and Visa settlements and tax benefits due to the revision of the Company’s estimated annual effective tax rate.
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