On Friday, post the announcement of the profits amassed during the first quarter of the new fiscal year, the shares of the american express company headed north. The fact that the customer spending had increased in the previous quarter helped the bank double its profits and move up in the volatile share market.
This exciting performance by the financial major gave hope to other credit card companies that were reeling under the losses caused due to the economic downturn caused a couple of years ago. Bad debt accumulated as consumers reeled under the effect of poor economic conditions.
In addition to American Express, another credit card company Capital One also posted a profit during its first quarter. Thanks to the income generated from the fees and the interest rate, the bank was able to recover a certain amount of the losses incurred during the previous fiscal year. In addition to posting a profit, American Express had another reason to smile. The number of consumers defaulting on their loans showed a dip which meant lesser number of bad loans for the bank.
As per the financial analysts, the reports from American Express, which is a New York based company, shows an upward trend because the bank now cater to customers from an affluent background who will not be impacted by the new credit card regulations that are now coming in to play.
After hitting a really low figure last year, cardholder spending showed a 16% increase among American Express consumers. Earnings to the tune of $885 million, up 11% from the previous year's $6.6 billion, were posted as the industrial average on Dow Jones. This increase in customer confidence helped beat all the forecasts for the first quarter of this financial year.
Scott Valentine, an economic analyst with FBR Capital Markets said "In an economic recovery similar to what we are experiencing now, American Express' overweight exposure to the affluent mass population is likely to spur higher-than-industry average spending volume."
The announcement made by American Express post the closing bell mentioned that the biggest contributors to cardholder spending were the people in the corporate sector and its network of banks. The revival in the travel and entertainment segment enabled an increase in the spending abilities for small businesses and regular consumers. The income for American Express was generated through charge cards issued by the bank, in addition to the regular credit cards.
An increase of 3.4% was seen in the shares for American Express as the value stood at $48.36 in the afternoon session of trading.