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The second-quarter profit of American Express Co. tripled as its card member’s spending increased by 16%, taking the company back to better business levels as its card loan losses recede.
The results of American Express’s third consecutive quarterly gain, which had broken a losing streak of falling profits for the company since the start of 2007 recession, marked a turnaround in the credit card industry’s performance in which its clients are more optimistic and the economy becoming more stable.
The results showed that the company earned over $1.02 billion in its April-June quarter, which is about 84 cents per share. This is a big improvement from its earning last year, which had been $337 million, about 9 cents per share. Revenue had increased 13% from $6.1 billion to $6.9 billion. The company’s quarterly gain results even exceeded the expectations of Wall Street, in which analysts said, in a survey by Thomson Reuters, that they have expected the earnings to reach 78 cents per share with sales of $6.8 billion.
According to the company, this situation was due to the 16% increase of their card member’s spending, of which the largest increases originated from corporate cards, premium co-brand cards, and bank partner-issued cards. Some of these large spending also came from individuals and corporations who have shelled out for airplane tickets, according to Chief Financial Officer Daniel Henry,
American Express chief executive, Kenneth Chenault, stated that the company’s business is back, or rather near, pre-recession levels even with the economic situation still uneven. Chenault also added that American Express still remains cautious of the economy and regulatory environment.
Last year, the company had lowered from $1.6 billion of its loss provision to $652 million, which showed that there were continuing improvements in the quality of credits in credit card and charge portfolios.
Last month, American Express’s net charge-off rate plunged to its lowest so far, about 5.7% since the start of economic crisis. This was an improvement from last year’s rates when it had been 10%.
The challenge that the New York-Based credit card company now has to take care of is to compensate for the decline suffered in interest income on customer’s existing balances, because many of American Express’s cardholders are paying their bills on time each month and are borrowing less.
The U.S. unit has provided more than a half of American Express’s net income of $522 million a year ago when it has lost over $153 million. The U.S. business’s loss provision had gone down 56%, about $519 million, as credit quality improve.
American Express shares in extended-hours trading fell to $43, shares have increased 50% from last year, and while during the regular session its stock had went up 5%, or $2.04 a share, to $43.19 as it had waited a strong report.
