American Express Co., the biggest U.S. credit-card company by purchases, withdrew its 2008 earnings forecast after second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares slumped 11 percent in extended trading.
Profit from continuing operations declined to $655 million, or 56 cents a share, from $1.04 billion, or 86 cents a year earlier, the company said today in a statement. The average estimate of 17 analysts surveyed by Bloomberg was 82 cents. American Express said it added $600 million before taxes to reserves for U.S. loan losses.
``By almost any measure, the U.S. economy and business environment are much weaker than the assumptions'' the company had in January, Chief Executive Officer Kenneth Chenault said today in a conference call. ``Unemployment rates took the largest jump in over twenty years. Home prices declined at the fastest rate in decades and consumer confidence is at one of its all-time low points.''
The U.S. economic slowdown worsened in June, affecting even American Express's wealthier cardholders with high credit scores, Chenault, 57, said in the call. Late and uncollectible loans were higher than expectations in the quarter and will rise as the year progresses, Chenault said. The U.S. lost 62,000 jobs in June, the sixth straight period of shrinking payrolls.
American Express fell $4.55 to $36.40 in trading after the close of regular U.S. markets at 5:58 p.m. The company's results sparked a 0.9 percent decline in Standard & Poor's 500 Index futures contracts expiring in September.
Previous Forecast
``They're like any other consumer lender right now, caught behind the 8-ball,'' Craig Maurer, analyst at New York-based Calyon Securities who rates the company ``buy,'' said in a Bloomberg Television interview. ``I don't think the environment's going to be helpful to the company over the next nine to 12 months.''
American Express is ``no longer tracking'' to a prior forecast for 4 percent to 6 percent earnings per share growth for this year, he said. The company won't meet longer-term targets until the U.S. economy improves, Chenault said.
Profit in the company's U.S. card business dropped 96 percent to $21 million from $580 million a year earlier as provisions for losses more than doubled to $1.5 billion from $640 million. Uncollectible debt in the unit rose to 5.3 percent of loans from 2.9 percent a year earlier.
``We are seeing very affluent people who have had historically very, very strong spending history with us cutting back,'' Chenault said.
Discontinued operations related to American Express Bank Ltd., which the lender sold last year, resulted in a loss of $2 million, compared with income of $17 million a year ago.
Negative Outlook
American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped by more than a third in the past year as consumers have a harder time repaying debt of all kinds.
Moody's Investors Service has a negative outlook on credit- card lenders and said defaults ``will most certainly'' rise this year. Stressed consumers are tapping plastic as access to home- equity loans falls off, New York-based Moody's said in a February report.
American Express's net income declined to $653 million, or 56 cents a share, from $1.06 billion, or 88 cents a year earlier, the New York-based company said.
Consumer prices surged 1.1 percent in June on higher food and fuel prices, more than analysts had expected, the Labor Department said this month. The cost of living rose 5 percent in the year leading to June, the biggest increase since 1991.
Rising Defaults
Delinquent credit-card accounts rose more than a full percentage point from a year earlier to 3.99 percent in May, according to Bloomberg data.
Rising defaults hurt second-quarter profit at Capital One, where earnings fell 40 percent to $452.9 million. The McLean, Virginia-based company said it expected as much as $7 billion in soured loans in the next year. Discover, based in Riverwoods, Illinois, said last month that profit from continuing operations in the quarter ended May 31 fell 19 percent to $202 million.
Some of American Express's rising loan losses will be cushioned by about $4 billion in settlement payments from Visa Inc. and MasterCard Inc. American Express said last month it settled an antitrust suit against MasterCard for $1.8 billion. Visa and bank partners settled in November for $2.25 billion.
American Express was ranked first by the total value of purchases and cash advances to U.S. cardholders in the first half of 2007, according to the Carpinteria, California-based Nilson Report, a trade publication. JPMorgan Chase & Co. and Bank of America Corp. are ranked second- and third-largest.
Billionaire Warren Buffett's Berkshire Hathaway Inc. owns the largest American Express stake with 151.6 million shares, 13 percent of outstanding stock at year-end, according to Bloomberg data.
No comments:
Post a Comment