Amex Reports Slimmer Profits

American Express last month said net income for the fourth quarter of 2005 totaled $745 million—down about 17 percent from previous year profits of $896 million. Meanwhile, the company today plans to announce a change in its Global Client Group senior management structure.

Gary Crittenden, American Express executive vice president and CFO, attributed the decline to the number of bankruptcy filings due to the Oct. 17 change in federal bankruptcy law. Despite the loss, chairman and CEO Kenneth Chenault in a statement accompanying the report said, "higher spending by affluent consumers, small businesses and corporate card members more than offset the impact of an industrywide spike in bankruptcy filings."

The New York-based firm reported small business spending was up 18 percent and corporate services volume 13 percent. Meanwhile, travel and entertainment spending and U.S. airline volume both rose 12 percent.

"This is the first time we've seen that in quite a while," Crittenden said of the lift in airline billings. "We're not in control of that, obviously. It's driven entirely by airline pricing, but it is a hopeful sign after a long period of time. Since we've seen average ticket prices decline, it's a very positive thing to see that strengthening. We've seen the strengthening in hotels. It would be nice to see that on the airline side. They're certainly flying fuller than they did a year ago."

However, the report also revealed a decrease in travel commissions and fees by 10 percent on a 3 percent decline in travel sales and lower fees per sale, due in part to the ongoing transition to online booking, Crittenden said.

American Express' card business saw its worldwide cards in force grow 9 percent, as the company added 2 million net new cards during the quarter and 5.6 million net cards since last year, reflecting 6 percent growth in proprietary cards and 23 percent growth in network cards. Spending per proprietary basic cards in force grew 7 percent worldwide, despite the suppressing effect of the substantial card additions over the past year and the negative translation effect of a stronger dollar, Crittenden added.

Marketing of the company's Global Network Services business, which includes agreements with MBNA, Citigroup and now Bank of America and HSBC, also contributed to strong card and billings growth, helping to add 2 million new cards in the fourth quarter.

"Our U.S. partners now account for over 50 percent of the total U.S. credit card billings for Visa and MasterCard, and each of them have attractive high-spending customer segments within their portfolios and are looking for ways to differentiate their product offerings to those customers," Crittenden said. "That positions us to successfully pursue our strategy and deliver excellent value for them."

Moshe Orenbuch, an analyst at Credit Suisse First Boston, said Amex did well last year. "It's obviously complicated this year because of the spin off of Ameriprise, but on an operating basis, if we put American Express side by side without Ameriprise in both years, we've got earnings growth of 20 percent in 2005," he said. "We would look for them to have 15 percent earnings growth in 2006."

Meanwhile, Amex promoted two executives: Gunther Bright to senior vice president and general manager of the global client group for commercial card, and Joe Terrion now is vice president and general manager of global partnerships at American Express Business Travel. The changing nature and increasing complexities of the payment and travel industries spurred the moves, said Gordon Smith, president of the company's global commercial card division, in a statement. "Two senior leaders will manage, in tandem, the two sides of the business for the global customer segment," Smith said. "This new structure will give us greater focus in servicing the growing needs of our card and travel customers."