Amex’s profits fall following loss of Costco deal

American Express reported $1.3 billion in profits for the second quarter as it worked to overcome the loss of a lucrative partnership with the retail chain Costco.

The New York-based firm’s net income fell by 33% from the same period a year earlier. But that steep decline was attributable to the more than $800 million in one-time, after-tax gains that Amex recorded in the second quarter of 2016.

Kenneth Chenault, chairman and CEO of American Express Co.
Kenneth Chenault, chairman and chief executive officer of American Express Co., speaks at the Money 20/20 conference in Las Vegas, Nevada, U.S., on Tuesday, Nov. 4, 2014. The conference, which includes over 100 sessions and 500 speakers, explores the evolution of payments and financial services and the innovations that are driving trends in the mobile, retail, marketing services, data and technology sectors. Photographer: Jacob Kepler/Bloomberg *** Local Caption *** Kenneth "Ken" Chenault

The gains that Amex realized last year were a short-term benefit from Costco’s decision to end a long partnership and start issuing its credit cards with Citigroup. But in the longer term, Amex has been paying a substantial price for the loss of the Costco portfolio.

American Express CEO Kenneth Chenault said in a press release Wednesday that the firm has been pushing recently to lower its operating expenses while increasing its investment in businesses with the most attractive growth potential.

“The work is not complete, but we’re now moving ahead with a stronger foundation and a blueprint for growth in the years ahead,” Chenault said.

During the second quarter, Amex’s interest income rose by 3% to $2.05 billion.

But its noninterest revenues fell by 1% to $6.78 billion as worldwide spending on the company’s cards was flat.

Amex has a more upscale customer base than several of its competitors in the U.S. card market, and credit quality remained a strong point in the second quarter.

Only 1.1% of loans to Amex cardholders were 30 days or more delinquent during the quarter, unchanged from a year earlier. The company’s provision for losses climbed to $584 million, up 29% from the second quarter of 2016.

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