American Express Has $275 Million Charge for Quarter (Update5) By Hugh Son
Jan. 10 (Bloomberg) -- American Express Co., the third- largest U.S. credit-card network, will take a fourth-quarter charge of $275 million to cover rising customer defaults and forecast earnings this quarter below analysts' estimates.
The stock fell 7 percent in extended trading. American Express, based in New York, said today that first-quarter earnings from continuing operations will be less than 90 cents a share, missing the 93-cent average estimate of 12 analysts surveyed by Bloomberg.
American Express adopted a ``cautious view'' for 2008 after cardholder spending slowed and delinquencies rose in December amid a slowing U.S. economy, the company said in a statement. Capital One Financial Corp., the largest independent U.S. credit-card issuer, said today it may have $5.9 billion in unpaid loans next year, compared with an earlier forecast of $4.9 billion to the ``mid-$5 billions.''
``We did see some negative credit trends among U.S. consumers during December, particularly in California, Florida and other parts of the country most affected by the housing downturn,'' Chief Executive Officer Kenneth Chenault said in the statement.
Write-offs, or loans the company deemed uncollectible, rose to 4.3 percent in the fourth quarter from 3.7 percent in the third, the company said. It expects they will rise to 5.1 percent to 5.3 percent this year.
Sudden Worsening
Chief Financial Officer Daniel Henry said on a conference call today the rate that customers repaid loans worsened ``quite suddenly'' in December, leading to the change in 2008 estimates. The weakness was isolated to U.S. consumers, not overseas or business spenders, he said.
Henry told analysts in October the company's ``affluent and high-spending'' cardholders shelter the company from the problems of borrowers with the riskiest credit histories.
``Credit-card performance will noticeably deteriorate during the year, given spillover from residential mortgages, weaker economic trends, and higher levels of unemployment,'' Fitch Ratings said today in a report on the U.S. industry.
The fourth-quarter charge will be about $440 million before taxes, the company said. It will report earnings Jan. 28.
American Express dropped $3.67 to $45.25 in trading after the close of regular markets. It has declined 17 percent in the past year in New York Stock Exchange composite trading.
Visa Inc. and MasterCard Inc. operate the two biggest card networks by transactions processed. Discover Financial Services, the No. 4 company, and American Express, are lenders that offer cards as well as run networks.
Merrill Lynch & Co. Inc. analyst Kenneth Bruce last month recommended investors sell shares of American Express, Capital One and Discover Financial Services, predicting that consumer spending would deteriorate this year.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
Last Updated: January 10, 2008 19:52 EST
