NEW YORK — Credit-card lenders are unlikely to achieve the profit and revenue levels reached before the recession despite industrywide improvements in loan delinquency and charge-off rates, American Express Co.'s top executive said Wednesday.
The New York-based lender, which focuses mostly on affluent borrowers, also hasn't seen any notable effects to its business as more competitors have begun marketing premium cards, Ken Chenault, chairman and chief executive of American Express, said during a presentation at the Goldman Sachs financial services conference in New York.
"We have had competition in the premium space for a long time, but given the changes that are happening in the industry I actually believe it's going to be very difficult for a number of banks to return to the profitability and the financial dynamics that they had pre-financial crisis," Chenault said.
Major card issuers, including American Express, Discover Financial Services, JPMorgan Chase & Co. and Capital One Financial Corp., have benefited since the recession as consumers work to pay down balances on time and shy away from racking up new debt. The consumer deleveraging has enabled lenders to sock away less money to cover future losses, giving a boost to their earnings, but also made it harder to grow loan balances, which drives revenue growth for most card issuers.
American Express is less affected by the lack of loan growth because it derives more of its revenue from transaction fees charged to merchants who accept its cards and annual fees charged to customers than its competitors, who rely more on finance charges related to the balances that cardholders carry, Chenault said.
Even if other lenders focus more on premium borrowers, who typically use their cards more, it will be hard for them to generate profits from these customers because they are more prone to pay off their balances in full.
"Clearly consumer behavior has become somewhat more cautious," Chenault said. "I think that's true for the industry overall."
In addition to consumer deleveraging, credit-card lenders have also been impacted by 2009 regulations that made it harder to raise interest rates and charge certain fees. The Credit Card Accountability, Responsibility and Disclosure Act requires issuers to provide at least 45 days notice to a customer before increasing a customer's rate and caps the amount of penalty fees, such as late charges, at $25 in most cases.
Income before provisions for loan losses declined an estimated 18% in 2010 for the industry, according to a February report from Boston Consulting Group.
American Express, the largest credit-card company as measured by spending, reported a profit of $1.2 billion, or $1.03 per share, in the third quarter, up from $1.09 billion, or 90 cents per share, in the same period a year ago. Revenue increased 9% to $7.6 billion. Spending on its cards grew 16% to $207.7 billion in the third quarter.
Chenault said he sees signs that U.S. retailers are faring better than expected during the crucial holiday shopping season, noting retailers have said they were "very encouraged" by Black Friday.
The dollar volume of Black Friday same-store sales made with credit and debit cards at U.S. merchants was 6.3% higher this year than last year, according to payment processor First Data Corp. Transaction growth was 7.3%.
Meanwhile, research firm comScore said Tuesday that U.S. online spending from Nov. 1 to Dec. 4 was $19.6 billion, up 15% from a year ago.
Still, Chenault struck a cautious tone about the outlook for the U.S. and global economy.
"We're in an uncertain economy. It doesn't take a lot for things to be knocked off-kilter."
