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This story appears in the May 2009 issue of Cards&Payments.
American Express Co. began 2008 with a warning for investors that a worsening economy likely would bring higher write-offs for card issuers. AmEx became a bank holding company in November then ended the year with the announcement that it expected to use its new status to receive about $3.4 billion through the U.S. Treasury Department's Capital Purchase Program.
In the months between, the issuer tweaked its portfolios, rewards programs and operating costs to save expenses, reduce risk and try to keep its profitable cardholders happy.
"The housing market has continued to deteriorate, unemployment has risen significantly, and retailers have seen some of the biggest declines in many years," CEO Kenneth Chenault said during a conference call Jan. 26 to discuss fourth-quarter and full-year 2008 earnings. "Consumer confidence has dropped off the charts, and corporations have acted quickly to pull back on their expenses."
AmEx reduced its own expenses in October by cutting 7,000 jobs, or nearly 10% of its global workforce. It also initiated a hiring freeze and said it was suspending managers' salaries for 2009.
Companywide, AmEx reported net income of $2.7 billion for the year, down 32.5% from $4 billion in 2007.
In March, AmEx restated its fourth-quarter and 2008 net income for its U.S. Card Services and Global Commercial Services units. A calculation error related to fair-value hedging had resulted in a $108 million reduction in quarterly expenses, AmEx said in a U.S. Securities and Exchange Commission filing.
The corrected net income for AmEx's U.S. Card Services unit in 2008 was $852 million, down 53.2% from $1.82 billion the previous year. International card services generated $351 million in net income, up 20.6% from $291 million.
AmEx's billed business, or annual charge volume, in the U.S. totaled $471.1 billion last year, up 2.6% from $459.3 billion in 2007. AmEx reported 54 million total cards in force in the U.S. at the end of December, up 3.3% from 52.3 million cards a year earlier (
AmEx managed $62.4 billion in U.S. card loans last year, down 5.3% from $65.9 billion in 2007. The issuer boosted provisions for losses on its U.S. cards to $4.4 billion, up 46.7% from $3 billion. Charge-offs on U.S. card loans increased to 5.5% of managed receivables, up 240 basis points from 3.1%.
Charge volume on AmEx cards issued outside the U.S. totaled $212.2 billion in 2008, up 12.9% from $188 billion the previous year. AmEx reported 38.4 million cards issued outside the U.S. as of the end of December, up 12.6% from 34.1 million the previous year.
Total loans on cards AmEx issued outside the U.S. reached $9.5 billion by the end of 2008, down 15.2% from $11.2 billion a year earlier.
One of the bright spots last year was the $1.8 billion settlement MasterCard Inc. agreed in June to pay AmEx based on an antitrust lawsuit AmEx filed in 2004. (Visa settled a similar case with AmEx in 2007 for $2.25 billion.)
"Throughout the past year, we were very cautious about the economic outlook," Chenault said during the January earnings call. "Looking ahead, we expect very difficult economic conditions to continue through 2009."
AmEx's strategy for the short term remains "keeping liquid, staying profitable and investing selectively to strengthen our franchise," Chenault said. Looking to long-term growth potential, he said investments in areas such as the business-to-business sector, "which is less reliant on credit," will help AmEx take advantage of opportunities when the economy improves. CP
