Reaping the results of improving credit quality among its U.S. customers, higher spending on corporate cards and in international regions, American Express Co. yesterday reported a 198.3% increase in net income for the fourth quarter ended Dec. 30 compared with a year ago.
Net income was $716 million, up from $240 million a year ago, when AmEx began to feel the most serious shocks of the recession. During the same quarter a year ago, AmEx absorbed a $421 million charge associated with layoffs and cost-cuts and set aside an additional $106 million in reserves for its Membership Rewards program. Revenues for the fourth quarter were flat at $6.5 billion.
“Indeed it looks like the worst of the economic crisis is now behind the company,” Red Gillen, a senior analyst with financial research and consulting firm Celent, says. But he cautions that AmEx’s stagnant revenues remain a concern.
“If AmEx is to grow revenue by being a major player in the payments space, it has some pretty big product portfolio holes to plug, including debit-, prepaid- and micropayments,” Gillen says.
American Express Co.’s U.S. Card Services unit posted net income of $365 million for the fourth quarter, up 470% compared with net income of $64 million a year ago. Total revenues net of interest expense for the fourth quarter fell 3% to $3.1 billion from $3.2 billion, which AmEx said was driven by lower net card fees.
U.S. billed business rose 8.1% to $92.1 billion from $85.2 billion a year ago. Total cards in force fell slightly to 39.5 million from 39.8 million.
The managed charge-off rate on U.S. credit cards was 7.5%, up 80 basis points from 6.7% a year ago, but down 140 basis points from 8.9% during the third quarter of 2009.
As a result of its lower quarter-over-quarter charge-off rate, AmEx set aside $346 million in loan-loss reserves during the fourth quarter, down 68.5% from $1.1 billion a year ago.
AmEx’s International Card Services unit reported fourth-quarter net income of $73 million, up 102.7% from $36 million a year ago. Total revenues net of interest expense rose to $1.2 billion, up 9.1% from $1.1 billion a year ago. Billed business rose 13.6% to $27.5 billion from $24.2 billion. Total international cards in force fell 8% to 15 million from 16.3 million. The net charge-off rate on international cards was 6.1%, up 100 basis points from 5.1%. Provisions for loan losses rose 33.3% to $324 million from $243 million a year ago.
