American Express Co. will increase lending to U.S. customers as competitors offer to lower their acceptance costs to win credit-card partnerships with big merchants, Chief Executive Officer Ken Chenault said.
The focus on financing may help Amex bolster revenue amid increasingly aggressive bidding on deals with retailers, airlines and other companies that can bring in customers and fuel fee-generating spending. Still, the strategy isn't likely to shift Amex's total revenue mix, Chenault, 64, said Thursday at the company's annual investor day.
Amex is trying to reverse its worst stock slump since the financial crisis after deciding last year to part ways with its biggest co-brand partner, Costco Wholesale Corp. Chenault, vowing to avoid partnerships if the terms don't make economic sense, has been shaking up management and reshaping divisions to rejuvenate earnings as the competition, a strong U.S. dollar, falling gas prices and new rules hurt revenue.
"Our board is fully supportive of our plans," Chenault said. Fox Business Network reported this week that management is on "thin ice," and that Amex might sell itself to a bank, paving the way for a new chief.
The stock slipped less than 1 percent to $58.61 at 3:05 p.m. in New York. It's down 16 percent this year. In a presentation on its website, Amex reiterated a forecast for earnings per share of $5.40 to $5.70 for this year and at least $5.60 for 2017. It also stuck by a $1 billion cost-cutting target.
Amex has long emphasized the advantage of its "spend-centric" reliance on handling transactions rather than a "lend-centric" focus on earning interest from card balances. But that strategy has been challenged by competitors' willingness to sweeten terms on fees. On Thursday, Chenault told investors that Amex has the skill and assets to build a "superior" lending model to beat rivals.
"We'll bring new lending products to our membership, enhancing the value of membership," consumer services chief Doug Buckminster said during his presentation. "We will not compromise our rigorous underwriting approach."
Under a deal with Visa Inc. and Citigroup Inc. last year, Costco may cut its acceptance costs to roughly zero, people familiar with the arrangement said in April. That compares with the roughly 0.6 percent of each transaction the retailer was paying to Amex.
The card company has long sought to boost per-share profits by 12 percent to 15 percent on average over the long term, while targeting revenue growth of at least 8 percent. While Chenault said that isn't the immediate goal because of the current challenges, he laid out "potential growth scenarios" showing Amex can still increase per-share earnings with slower revenue growth. He said he isn't offering those figures as a new target.
