Wed, Jan 28, 2009 - Page 5 News List

American Express fourth-quarter profit plunges 79 percent

EXPENSES Aside from the fall in card spending, the firm booked US$273 million for severance pay and higher reserves for membership rewards

AP , NEW YORK AND BLOOMBERG

American Express Co said on Monday that its profit tumbled 79 percent in the fourth quarter as cardholders cut back their spending amid the harsh economy and the company took a significant severance-related charge.

For the final three months of last year, the credit card company earned US$172 million, or US$0.15 per share, compared with earnings of US$831 million, or US$0.71 per share, a year earlier.

Results included a US$273 million charge primarily related to severance costs from previously announced job cuts, as well as a US$66 million increase in the company’s membership rewards reserve related to a partnership agreement with Delta Air Lines.

On an adjusted basis, excluding discontinued operations, the company earned US$238 million, or US$0.21 per share.

Analysts polled by Thomson Reuters were expecting earnings of US$0.22 per share. Analysts typically exclude one-time items from their estimates.

In its US card unit, American Express said loan defaults surged to 6.7 percent of loans from 3.4 percent a year earlier.

Lenders are closing unused accounts and scaling back credit lines to insulate against further losses as the US Federal Reserve approved rules last month to curtail interest-rate increases on current balances.

Total revenue declined 11 percent to US$6.51 billion from US$7.32 billion. This missed analysts’ forecast of US$7.22 billion.

For the full year, the company said net income fell 34 percent to US$2.63 billion, or US$2.27 per share, from US$4.01 billion, or US$3.36 per share.

American Express got US$3.39 billion from the US Treasury this month to boost capital as surging consumer defaults forced it to set aside more reserves and the market for bonds backed by credit-card debt seized up.

CEO Kenneth Chenault cut 7,000 jobs and froze hiring and management raises to help reduce expenses by US$1.8 billion this year. The company raised US$6.2 billion by selling certificates of deposit in the quarter.

Shares of American Express jumped US$1.05, or 6.6 percent, to US$16.14 in after-hours trading, having closed the regular session at US$15.20.

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