The card business has been the strong leg of American Express Co.s tripod this year with its travel-related and financial advisory services the weaker.
But given the troubles in the other units, even the good leg is looking a bit wobbly.
American Express has been pointing to cards as a bright spot on its darkening balance sheet, which took yet another blow Wednesday when it announced further layoffs and more corporate restructuring. But the problems in travel-related services are bringing down Amexs signature business, its corporate charge card portfolio, which is showing increasing signs of weakness as people curtail their travel plans.
For now, analysts say, American Express revolving credit card portfolio which consists largely of superprime customers is looking like the only jewel in a tarnished crown.
American Express attributed Wednesdays bad tidings to the Sept. 11 attacks, saying that fear had exacerbated an already uncertain economy, and that business travel had been hit particularly hard. The New York company said it expected to take a charge of $240 million to $280 million in the fourth quarter related to the elimination of some 5,500 to 6,500 jobs, about half of them at its business travel arm. It did not say where it the other half would come from.
The cuts come on top of the 7,700 announced earlier this year, and bring the total number of layoffs to between 13,200 and 14,200 about 15% of the companys work force at the start of 2001.
This has been a difficult year for the travel business and, by connection, the corporate card business but we have positioned ourselves well, said Gary Crittenden, American Express chief financial officer, in a conference call Wednesday.
Even before Sept. 11, American Express had been delivering bad news. Over the summer, the company was forced to take millions of dollars in writedowns of high-yield securities in its American Express Financial Advisors portfolio.
That leg of the business has continued to suffer as investors have sat on the sidelines. American Express said that overall sales and financial planning levels deteriorated in September, and stayed weak in October and November.
In a separate sign of decline, travel sales for October were down approximately 46% from a year earlier, the company said. November travel sales were down about 38% from the year-earlier period. Half of the staff reductions will come from the travel business, Mr. Crittenden said, but did not specify where the remaining cuts would be.
So far, the companys consumer card business has continued to hold up, said Matthew Park, an analyst at Thomas Weisel Partners in San Francisco. American Express has had faster growth in consumer debt in the past 12 months, and has increased market share, he said.
But with corporate charge card volume slowing, the challenge will be to keep up the momentum in revolving cards, and make sure that customers stay loyal, he said. The revolving card business, however strong, can only do so much to make up for the weaknesses in other areas.
I think they have done great job in growing their revolving balances, but for next year theyll have to reprice some of their balances and hope theres not a whole lot of attrition, Mr. Park said.
Mr. Crittenden of American Express said that although card spending volumes in its travel-related services unit are down from last year, billed business has shown improvement since the end of September. Compared to year-earlier levels, billings were down about 14% in September, 10% in October, and about 6% in November, he said. Weakness within the corporate travel and entertainment sector was exacerbated by the Sept. 11 attacks which also damaged the companys headquarters and have been offset in part by relatively strong consumer spending, he added.
Last summer, chief executive officer Kenneth I. Chenault said that cost-saving measures would include pushing more corporate travel customers to the Internet. On Wednesday, Mr. Crittenden reiterated the importance of the Internet in reducing costs, but said that staff reductions would have no impact on customer service.
There are some concerns whether the reductions might impact customer service, he said. Let me assure you this is not the case.
Analysts said that in light of the economic slowdown, peoples reluctance to travel, and American Expresss warning in the third quarter, the additional layoffs were not a great surprise. Michael J. Freudenstein, an analyst at J.P. Morgan Chase & Co., said the company had been under pressure even before Sept. 11, and the pressure simply got worse. Reduced revenues required them to take some tougher action on the cost side to get operating margins back in line, he said.
