Card-billed business for American Express Global Commercial
Services, the Amex division that houses corporate cards, increased 3 percent
year over year in the first quarter to $98.5 billion. Amex has restructured, adding
small business services, merchant financing products and foreign exchange
services to the GCS division, but the 3 percent year-over-year gain is based on
revised 2015 numbers.
GCS net income declined 6 percent year over year to $485
million. However, revenue net of interest expense increased 2 percent to $2.4
billion, owing to "higher net interest income and cardholder spending,"
according to Amex. Total expenses for the segment increased 7 percent to $1.5 billion,
which Amex attributed to higher rewards and investments, mostly on technology
development.
Amex CFO Jeff Campbell said the decline in volume that
resulted from the loss of Costco co-branded cards "impacted the small
business volumes within GCS" and that lower gas and airline ticket prices
"remain headwinds" for the division. "We continue … to see
differing performance trends within GCS with better growth amongst small and
middle-market businesses versus more cautious spending amongst global and large
customers," Campbell said.
Amex's companywide first-quarter net income declined 6
percent to $1.4 billion year over year. Diluted earnings per share decreased
from $1.48 a year ago to $1.45. In March, Amex's compensation and benefits
committee cut
CEO Ken Chenault's 2015 pay by 26 percent because of the company's
inability to reach goals for earnings per share, billed business growth and
return on equity targets. Chenault did not participate in Amex's first-quarter earnings
call.
"We recognize that we're operating in a new reality,
and we're focused on our plan to increase revenues and substantially reduce our
costs," Campbell said. "We continue to believe that the strength of
our business model will allow us to drive profitable growth."
As the card network expected, Amex experienced a
"larger-than-usual," 5 percent year-over-year decline on its discount
rate, the rate merchants pay to accept Amex cards. As after the fourth
quarter, Campbell attributed the decline to the expansion of its OptBlue
small business acquiring program and the European Union's interchange
fee cap, as well as traditional factors such as merchant negotiations.
While the interchange fee cap doesn't impact
Amex directly, it puts pressure on Amex to "keep the differential"
when negotiating with merchants "because we normally have a premium in
most of those markets," Campbell said. "By historical standards, it
will probably take us a couple of years to work through a negotiating cycle
with all the merchants."