Amex Q4 Losses Show Drop In Corporate Travel

In American Express' first reporting period as a Federal Reserve Board-regulated bank holding company, the largest corporate charge card supplier reflected the deepening economic slide during the fourth quarter of 2008 as charge card delinquencies increased, global corporate travel sales fell dramatically and the company incurred a $421 million pre-tax charge for reengineering costs, primarily from headcount reduction.

In its quarterly investors call last month, the company reported that its global commercial services unit, which houses American Express Business Travel and the commercial card divisions, lost $18 million during the quarter compared with a net income of $110 million during the same period last year. Total global commercial services revenue decreased 7 percent to $1 billion, "reflecting lower level of spending by corporate card members as well as lower travel commissions and fees," the company said in a statement.

Global corporate travel sales decreased 22 percent to $4.3 billion compared with the fourth quarter of 2007. For the full year, the company managed to increase global corporate travel sales 2 percent to $21 billion.

Even with the 4 percent increase in commercial cards in force to 7.1 million, segment billed business decreased 11 percent to $28.7 billion. Delinquency rates for commercial cards 90 days past due rose to 2.7 percent compared with a 1.8 percent rate in the third quarter of 2008.

Despite reductions in card spending, executives cited growth in new funding and liquidity lines, including a retail certificate of deposit program and $3.4 billion from the federal government's Troubled Assets Relief Program.

Amex's fourth-quarter net income decreased 79 percent compared with the same period in 2007 to $172 million. Total revenues net of interest expense decreased 11 percent year-over-year during the quarter to $6.5 billion.

"We remain cautious about the economic outlook through 2009, and expect card member spending to remain soft with past-due loans and write-offs rising from current levels," chairman and CEO Kenneth Chenault said in a statement. "However, we believe the longer-term growth potential of the payments sector remains very attractive. The investments we are making in our business will help ensure that we can capitalize on those opportunities when the environment improves."

American Express' fourth-quarter financial performance exceeded some Wall Street expectations, as the company showed its strong liquidity lines and a deceleration of mounting credit losses companywide.

In a research note released by Piper Jaffray, senior research analyst Robert Napoli said, "We believe AXP could be one of the first financial stocks investors flock to once they anticipate in the recovery in the back half of '09. The rate of increase in credit losses has slowed to be in line with the industry. We are confident AXP credit losses will be comfortably below the industry average as we move to the other side of this cycle. Lagged credit losses have generally stabilized over the last three quarters, but we expect them to increase over the next year."