Higher card spending lifts American Express profit to US$1.65b

Business | 19 Oct 2018 11:09 am

American Express said on Thursday its third quarter profits jumped by 22 percent from a year earlier, as the credit card giant benefited from a lower tax rate and increased spending on the company’s credit cards.

The New York-based company said it earned a profit of US$1.65 billion, or US$1.88 a share, which is up from US$1.36 billion, or US$1.51 a share, in the same period a year ago. The results beat analysts’ expectations, who were looking for AmEx to earn US$1.77 a share, according to FactSet.

"We delivered strong results this quarter driven by higher card member spending, fee income and loans,” said Stephen Squeri, the company’s chairman and chief executive officer. Squeri took over AmEx early this year, when then chief executive Kenneth Chenault retired.

The results came as American Express faces a much more competitive landscape than it did only a couple years ago. The Chase Sapphire Reserve Card by JPMorgan Chase became a major product in the premium credit card market, something that solely belonged to American Express with its Platinum Card.

In response, AmEx has been adding benefits to its cards, like a US$15-a-month credit on Uber, or, with the recently revamped Gold Card, a US$10-a-month credit on select dining outlets. Meanwhile, AmEx has been raising the annual fees on its cards to make up for the increased benefits — something that appears not to be driving away new or existing customers. Total cards in force grew by 7 percent from a year earlier, despite the fee increases.

American Express card users spent US$294.7 billion on their cards globally last quarter, an 8 percent jump from a year earlier. In the U.S., the company’s largest market, card user spending was up 10 percent from a year earlier. AmEx takes a fee from merchants for each time their cards are used.

AmEx has also been encouraging its users to maintain a balance on their cards as well, collecting more interest income particularly as interest rates rise. Total loans held by AmEx users were US$77.6 billion in the quarter, up from US$67.9 billion a year earlier. That helped contribute to a 20 percent rise in interest revenue this quarter.

But that move into lending comes with a risk that some customers will be unable to repay their debts. The company’s net charge-off rate, or the percentage of loans AmEx sees as unrecoverable, creeped up to 2.5 percent from 2.1 percent a year earlier. That figure still remains among the lowest in the industry, but it has been moving higher or holding steady for several quarters now.

Despite the rise in delinquencies, American Express Chief Financial Officer Jeff Campbell said the defaults are "slightly better than what we previously expected.”

Like other large companies, AmEx also benefited from a lower tax rate this quarter, due to the Republican tax law that was enacted late last year. The amount that the company set aside to pay income taxes was down 2 percent from a year earlier, even though AmEx’s revenues and profits grew.

AmEx shares were up by 0.5 percent to US$103.40 in after-market trading.

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