July 16, 2009
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News: AmEx Expects To Fare Well
American Express is seeing the effects of consumer spending slowdown, but expects expect the prominent credit card company to realize a net income of 22 cent a share and over $6 billion in revenue for second quarter 2009. Thomson Reuters estimated AmEx's numbers which is down from 56 cents a share and over $7 billion same time last year. A 16% decrease in customer spending sent American Express's first quarter net income down a whopping 56% to $437 million. Analysts are saying that the credit industry is faring better and expect credit card delinquencies to being tapering off. However, an increase in spending is difficult to see. American Express is unique in that it not only is a card issuing company, but the company processes its own transactions. That means that the company earns a large portion of its revenue from the interchange fees that they charge banks and merchants on each transaction. In addition to that, a large majority of AmEx credit cards require the customer pay the balance off in full each billing cycle. That means AmEx generates a small portion of its revenue from interest.
Of some comfort for investors is in knowing that AmEx card defaults were down 10% in May and June delinquencies of 30 days or more were at 4.4% down from 4.7% in May. The company's total loan debt bonds which include credit cards, as of June totaled $54 billion. So, as investors continue to be concerned by the slowdown of consumer spending, they feel moderately encouraged by the modest reduction in credit card defaults. Still, experts say investors need to continue taking precautions to protect their interests.
American Express also repaid the $3.4 billion in bail out money it received under the Term Asset-Backed Securities Loan Facility (TALF) program which is another positive sign that the large credit card company has begun recovering from the credit crunch. Whether or not the decrease in defaults continues to be established as a trend will be dependent on the effects of unemployment, consumer spending, and new credit reform.