Credit Card Giant Performs Better than Expected

American express company (AmEx) defied expectations through quarterly earnings they posted this Thursday. Trimmed costs, slower spending decline by consumers, and lower credit losses than forecasted all contributed to AmEx's better-than-expected performance this quarter.

The card company's chief executive reported that overall billings have become stable over the last few months while spending by corporate credit card members were beginning to pick, both of which contributed to their improved earnings.

As Thursday's financial report reveals, this year's net income fell to $640 million from last year's $815 million. This means that each share had an average cost of 53 cent this year while the previous year's was at 70 cent.

Total revenue for the largest credit card company in the US by purchases fell to $6.0 billion, which is a decline of 16 percent. However, AmEx says this 17 percent decline in their consolidated expenses make up for the losses. The company reports that it was able to save $3.9 billion by trimming down jobs, marketing, and reward costs.

Total card spending by AmEx cardholders fell 11 percent compared to last year's third quarter, but the company says it is an improvement from the 16 percent contraction during the previous quarter.

Chief Financial Officer for AmEx, Dan Henry, reported that improvements are measured month after month while spending could decline in low single digits or remain stable in the last quarter of 2009.

Net charge-offs, which is the measure of how bad loan write-offs are in the US card service business, fell to 8.9 percent from 10.0 percent in the previous quarter compared to 2008 statistics when United States experienced the worst economy it has seen in decades.

American Express also gave a more positive outlook saying that it expects credit card charge-offs to decline in the fourth quarter compared to the third.

This means that the card issuer is expecting to write off fewer clients this quarter, basing on their improved performance and payment history. Analysts say this could be a sign of recovery for many American consumers.

Meanwhile, company representatives say they were overwhelmed by consumer performance last quarter. They announced that they were expecting a free fall this year, with losses expected mount up interminably. However, they cite broad-based improvements in credit quality which is a reason for them to remain confident about their performance. They add that losses are expected to decline this quarter since provisions for losses already decreased by 13.2 percent to $1.2 billion last quarter.

Analysts say the third quarter improvements of American Express places the company in a good position to take advantage of the recovering economy.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.