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American Express Co. today announced a $1.8 billion cost-cutting initiative resulting in the loss of 7,000 jobs, or nearly 10% of the company's global workforce. AmEx also instituted a hiring freeze and said it is suspending managers' salaries for 2009. It also is reducing consulting expenses and scaling back spending on technology, marketing and business development. Staff cuts will occur across business units, "primarily focusing on management and other positions that do not interact directly with customers," according to AmEx. "The reengineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades," said Kenneth I. Chenault, AmEx chairman and CEO. AmEx this month reported net income of $815 million for the third quarter ended Sept. 30, down 24% from $1.07 billion for the same period last year, and promised job-cuts (CardLine, 10/21). Analysts says AmEx's level of cutbacks is severe but not surprising given the gloomy economic conditions. "For several years, AmEx has been saying that its business model is 'spend-centric,' and now that spending is down across the board for payment companies, it stands to reason that AmEx's bottom line would be hit hard by a spending slowdown," Scott Strumello, an associate with Westbury, N.Y.-based Auriemma Consulting Group, tells CardLine. Other card issuers are also eyeing layoffs and cutbacks because of the poor economy or because of consolidation, including JPMorgan Chase & Co., which acquired Washington Mutual Inc. late last month, says Brian Riley, research director at Needham, Mass.-based TowerGroup. "Staff reductions (by other card issuers) will be highly targeted, rather than massive cuts of people," he predicts. AmEx shares rose nearly 6% to $26.73 after the company announced the cost-cutting plan.
