NEW YORK -- The credit card problems that forced American Express Co. to announce a $265 million charge against third-quarter earnings is leading to an overhaul of the company's credit operations and a search for new leadership.
It also has sparked debate as to whether bank issuers will be similarly stricken with credit-related losses.
Unique to American Express?
Many bankers and analysts contended Thursday that American Express' delinquencies and collection failures are not industrywide problems.
"They have been in the charge card business forever, but the revolving business is a lot different," said Robert H. Burke, senior vice president in charge of credit cards for Bank of New York Co. "They didn't understand the nuances of the credit card business, and they got burned."
American Express distributed credit cards to consumers based on their history in paying off charge card balances. But this offered little evidence of a continue overall creditworthiness because charge balances must be paid in full each month, bankers said.
Nevertheless, the actions announced Wednesday -- including the planned sacking of 1,700 American Express card employees -- spooked some bank analysts. If Optima cardholders cannot pay their bills, they reasoned, banks may be headed for similar troubles.
"The American Express cardholder base is pretty big and highly sought after," said John Keefe at Lipper Analytical Services. "These customers are probably on banks' books as well. This is not good news."
In the wake of its problems, American Express is said to be seeking a chief credit policy officer for its Centurion Bank, the unit responsible for the Optima card. It also is believed to be replacing Anne M. Busquet, executive vice president and general manger of the bank.
Sources said Thursday that the company has retained a recruiter to fill the credit post.
A company spokesman said no decision had been made regarding the future of executives who run the Optima program. "A review is under way, and we will act sooner rather than later," he said.
Ms. Busquet did not return calls seeking comment.
Card Launched in '87
American Express unveiled its revolving credit card in 1987. Bankers were frightened, despite the fact that this was American Express' first big push into consumer lending. The card was being issued to holders of the company's green, gold, and platinum cards -- a premium customer base coveted by banks.
American Express now seems to be conceding that it did not have the controls to monitor its credit card business. It said some Optima writeoffs were not properly recognized in he past three quarters -- an oversight responsible for $24 million of the $155 million after-tax addition to reserves it will take.
In an internal memorandum distributed to company employees late Wednesday, American Express president Harvey Golub implied that some irregularities had occurred. He wrote of "certain failures at Optima to comply with company policies and procedures," and encouraged employees to report indiscretions.
A spokesman for the Federal Deposit Insurance Corp. said he could not comment on whether the writeoff oversight violated the regulator's policies.
Competitors claimed that Optima also had a poor collections procedure that was rooted in its charge-card past. Many American Express customers use their charge cards for business-related expenses, which are paid by their employers. That makes potential deadbeats hard to spot.