American Express says Q1 profit fell
American Express says its first-quarter profit was hurt by increasing loan-loss provisions and delinquencies, signaling that the economic slowdown is catching up with even AmEx’s more affluent cardholder clientele.
Amid its U.S. card division, AmEx saw net profit fall 19 percent from the year earlier to $523 million. The credit card issuer says that loan-loss provisions (money set aside for loans that may go unpaid in the future) leapt 52 percent higher to $881 million. That jump was due to recent loan growth in addition to greater charge-offs and delinquencies, AmEx says.
Consumers relied more heavily on their AmEx cards in the first quarter, with cardholders upping their spending by 14 percent. As spending increased, so did cardholders’ difficulty in repaying their loans. “American Express saw its charge-off rates and delinquencies rise, as customers who are paying down their balances are doing so with less frequency and in smaller amounts.” MarketWatch says.
American Express reports that delinquencies of greater than 30 days increased to 4.1 percent as U.S. charge-offs reached 5.5 percent of loans. Charge-offs are the value of uncollected loan balances removed from the books and charged against a bank’s loss reserves. The rate is the amount of charge-offs divided by the average outstanding balance owed to the issuer.
For AmEx and other credit card lenders, tough times for consumers may spell a further deterioration in financial results. “The economic backdrop for credit card issuers is getting worse, as higher loan losses correlate closely with higher unemployment,” MarketWatch quoted Bradley Ball, an analyst for Citi, as saying in a research note. Friday’s jobs report for April will provide a snapshot of whether unemployment rose this month.