American Express Co. said Monday that its profit tumbled 79 percent in the fourth quarter as cardmembers cut back their spending amid the harsh economy and the company took a big severance-related charge.
This marks the fifth-straight quarter of profit declines at American Express — a credit card company that has prided itself on catering to a more affluent clientele — proving that few have been spared from the pain of the recession.
The New York-based company also said it expects spending to continue to slow in 2009, and forecast for higher delinquencies and loan losses as consumers and businesses battle worsening economic trends. The outlook echoes remarks made by fellow credit card issuer Capital One Financial Corp. last week.
For the final three months of the year, AmEx earned $172 million, or 15 cents per share, compared with earnings of $831 million, or 71 cents per share, a year earlier.
Results included a $273 million charge primarily related to severance costs from previously announced job cuts. That reduced earnings by 24 cents per share, the company said. Fourth-quarter results also included a charge of $66 million, or 6 cents per share, related to an increase in the company's membership rewards reserve due to the extension of a partnership agreement with Delta Air Lines. Year-ago results included a 45 cents-per-share gain from a settlement with Visa Inc. and various one-time charges totaling 60 cents per share.
On an adjusted basis, excluding discontinued operations, the company earned $238 million, or 21 cents per share.
Analysts polled by Thomson Reuters were expecting earnings of 22 cents per share. Analysts typically exclude one-time items from their estimates.
"We're clearly disappointed with our overall results," Kenneth Chenault, chairman and chief executive, said during a call with investors. However, he stressed that the declines in spending, while significant, compared favorably to what competitors in the industry are facing.
Total revenue declined 11 percent to $6.51 billion from $7.32 billion, missing analysts' forecast of $7.22 billion.
American Express' shares added 49 cents, or 3.2 percent, to $15.69 in after-hours trading, having closed the regular session at $15.20.
During the quarter, AmEx set aside $1.4 billion to cover bad loans, down slightly from the $1.45 billion set aside in the prior-year period when the company took a $274 million credit-related charge.
In the company's U.S. card segment, net income fell to $4 million from $7 million, as total revenue decreased 13 percent.
Average basic cardmember spending declined 13 percent to $2,758 from $3,161.
The international segment held up better in the fourth quarter, the company said, with net income falling 8 percent to $36 million. Average cardmember spending slipped 2 percent on a foreign exchange adjusted basis.
Adil Moussa, an analyst at Boston-based research firm Aite Group, said the international results were encouraging, but he warned of further deterioration to come.
"What happens in the U.S. is going to happen outside of the U.S. in a year or so," he said, referring to American consumers' pullback in spending.
The fourth quarter saw American Express transform itself into a bank holding company — a surprise move that signaled to investors just how severe the credit card giant's troubles had become.
In approving AmEx's request for bank holding company status, the Federal Reserve cited "emergency conditions."
Funding its daily operations had become more difficult and more costly amid the credit crisis. The securitization market, which AmEx uses to raise operating capital, has dried up as investors shy away from purchasing all but the safest forms of debt.
As a bank holding company, AmEx can now accept deposits and permanently access financing from the Fed. The status change also enabled AmEx to tap into the government's $700 billion financial bailout package. In January, the company received a $3.4 billion investment from the U.S. Treasury Department in the form of a preferred stock purchase.
Additionally, AmEx said it raised $6.2 billion through a new retail certificate of deposit program it launched in October.
As a result of the additional capital, the company's total capital to total managed assets was 7.9 percent at the quarter's end, up from 6.7 percent at the end of 2007.
AmEx said it remains committed to growing its deposit base and plans to launch a direct deposit program in the second quarter.
In October, AmEx announced plans to cut 7,000 jobs, or about 10 percent of its global work force, in an effort to slash costs by $1.8 billion this year.
For the full year, the company said net income fell 34 percent to $2.63 billion, or $2.27 per share, from $4.01 billion, or $3.36 per share. Revenue rose 3 percent to $28.37 billion.
