Delinquencies, Spending Cuts Drove 24% Dip In Amex Quarterly Profit

American Express suffered a 24 percent decrease in net income in the third quarter of 2008, as write-offs due to credit card delinquencies increased and cardholders reduced spending, according to the company's quarterly earnings report released late yesterday. Meanwhile, global corporate travel sales increased 4 percent year over year to $5.1 billion for the quarter, which ended Sept. 30. In the previous quarter, which ended June 30, the company processed $6.2 billion in global corporate travel sales.

The U.S. write-off rate in the quarter was 5.9 percent, but 6.1 percent in September. In the third quarter of 2007, the rate was 3.2 percent. "We expect the fourth quarter to be higher then the third quarter and we expect the first quarter of 2009 to be higher than the fourth quarter of 2008," said executive vice president and CFO Daniel Henry.

The biggest losses occurred in the U.S. consumer card services businesses, which experienced a 59 percent year-over-year decrease in net income. Global commercial services, which houses corporate card and payment systems, and American Express Business Travel saw a 1 percent decrease in net income during the quarter compared with the same period in 2007.

Global commercial services charge cards that were 90 days past due saw a small year-over-year increase to 1.8 percent, while those 30 days past due increased by 1.3 percentage points year-over-year to 3.8 percent, companywide.

American Express CEO Kenneth Chenault during yesterday's investor earnings call said, "Based on recent trends, we believe consumer and business sentiment is likely to deteriorate further and we see this translating into weaker economies around the globe well into 2009."

As U.S. consumer business continues to slide, the company is targeting building its lower-credit-risk areas, such as its global commercial services business. "The market turmoil of the past few weeks is clearly going to make conditions even more challenging," Chenault said. "Card member spending in such an environment is likely to be very soft. Loan growth will be restrained and some of that will reflect the steps we're taking to lower credit risks."

In an effort to offset the downturn, Chenault said the company has embarked on cost-reduction and revenue-building initiatives, further details of which will be released throughout the fourth quarter.

"I think there's a strong focus on expenses, and we also believe that there are opportunities to shift more volume from offline to online, and we think there are adjustments that we can make in our expense structure not just to deal with 2009 but in fact to have a business model that allows us to compete in a more effective way on a multi-year basis," Chenault said. "This is not just a situation that we're focused on revenues, and making changes relative to pricing. We also have gone through an extensive exercise as far as our expenses are concerned."

The world's largest credit card issuer increased total cards in force by 9 percent to 92.1 million. Billed U.S. business increased by 4 percent compared with the same period last year to $120.3 billion and outside of the United States it increased 17 percent to $55.2 billion.