American Express and Dean Witter, Discover & Co. Report Higher Loan

The card businesses of American Express Co. and Dean Witter, Discover & Co. suffered higher loan losses in the first quarter.

Profits nevertheless rose more than expected at American Express' Travel Related Services unit. But they fell at Dean Witter's credit services division.

Delinquency rates and loan losses have been of major concern for the card industry. A growing number of issuers have increased loan-loss reserves.

For example, Dean Witter raised its loan-loss provision 82%, to $379 million, and the provision for American Express' credit card products went up 77.8%, to $188 million.

American Express attributed that increase to higher loss rates, which it said also was a factor in a 27% increase in the provision for its charge card product - along with higher volume growth.

American Express' loss ratio increased to 5.2% from 4.1% a year ago, and Dean Witter's losses grew to 4.7% from 3.2% over the same period.

Sanford C. Bernstein & Co. analyst Moshe Orenbuch said that the two companies' loan-loss provisions were in line with the rest of the industry.

"Embedded in those numbers is a significant amount set aside for future losses rather than current losses," he said, "because Dean Witter and American Express are conservative companies."

The American Express card unit reported an 8.6% increase in net income, to $286 million. Revenues were up 6%, primarily due to an increase in worldwide billed business on American Express cards and growth in cardholder loans outstanding. The higher charge volume resulted from higher spending per cardholder, because of rewards programs and increased merchant coverage, the company said.

Dean Witter's credit services unit, based in Riverwoods, Ill., reported net income of $124.3 million, down 6% from a year earlier. Managed loans increased 19%, to $5 billion, and general purpose credit card accounts grew by 12%, to 36.7 million. Overall, Dean Witter reported record first quarter net income of $245.8 million, up 11%.

Reflecting an industry trend of increasing fee income, Dean Witter's cardholder and merchant fees jumped 35%, to $367.5 million.

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