American Express late yesterday announced plans to implement further cost-reduction initiatives in the second quarter of 2009 amid deep year-over-year decreases in income and revenue, due to continued drops in cardmember spending and travel and higher-than-average delinquency rates. The company also announced its intent to repay to the federal government the $3.4 billion it received from the Troubled Assets Relief Program.
Executive vice president and CFO Daniel Henry told analysts in yesterday's earnings call, "We've always viewed TARP as a temporary program. It was established at a time of extraordinary stress in the financial system and was designed to insure that participating banks were in a position to provide access to credit facilities that were needed to get the economy back on its feet. We have been doing that and believe we can continue to expand those activities responsibly, even after repaying TARP. We believe it's in the best interest of American Express and good public policy to return TARP after the stress-test process has been completed."
The company is on pace this year to reach the $1.8 billion savings target it announced in October
(BTNonline, Oct. 30, 2008). Amex at the time said it planned to cut 7,000 jobs or about 10 percent of the global workforce. In the first quarter of 2009, expenses were down 22 percent compared with the first quarter of 2008.
Meanwhile, Amex will implement further cost-reduction measures this quarter. "We're going to work very hard to execute against the reengineering that we put in place in the fourth quarter of last year so that we get the full benefit as we go through this year," said Henry. "As I indicated, we actually are going to have another round of reengineering, have additional actions including additional reductions in staff, so we do think there's additional flexibility in our business model and we will utilize those levers."
Global Commercial Services, the division that houses American Express Business Travel and corporate cards, reported a first-quarter net income of $86 million, a 43 percent decrease compared with the same period last year. Revenues net of interest expense decreased 17 percent to $944 million, which the company attributed to less spending by corporate card members and lower travel commissions and fees.
Global corporate travel sales decreased 37 percent year-over-year to $3.4 billion in the first quarter. Overall U.S. T&E spending is down 20 percent, far ahead of a non-T&E or retail spending decrease of 12 percent, according to Henry.
The Global Commercial Services charge card 90 days past due rate reduced to 2.4 percent from 2.7 percent in the fourth quarter of 2008
While total cards in force increased 6 percent to 7.3 million, the commercial card-billed business decreased 23 percent to $25.1 billion. "This had held up pretty well through the third quarter but we saw some sharp drops in the fourth quarter and again in the first quarter as the decision by corporations to hold back on spending is being reflected in these numbers," Henry said.
Even with the massive year-over-year drops in business, analysts said Amex had a better-than-expected quarterly performance. In a Piper Jaffray research note, senior research analyst Robert Napoli said, "We never thought we would see a quarter we deemed impressive with earnings per share down 64 percent year-over-year, but this was it."
He added, "Icing on the cake was AXP announcing its intent to request its regulators to allow it to repay its TARP preferred shares and associate warrants."