In a sign that even wealthier consumers are feeling the pinch of the credit crisis, American Express Co said its second-quarter profit tumbled as it set aside more money to cover souring loans across all its portfolios.
The credit card lender, known for catering to the US elite, said late on Monday that its second-quarter earnings fell 38 percent, well below Wall Street’s expectations.
The effects of the weakening economy were evident even among its more established members with excellent credit.
“Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations,” American Express chairman and CEO Kenneth Chenault said.
FALLOUT
“The scope of the economic fallout was evident even among our longer term, superprime cardmembers,” Chenault said.
The company’s shares dropped US$4.65, or 11.4 percent, to US$36.25 in aftermarket trading. They are down about 21 percent for the year.
For the period ended June 30, American Express reported net income of US$653 million, or US$0.56 per share, compared with US$1.06 billion, or US$0.88 per share, in the year-ago period.
Analysts, on average, expected earnings of US$0.83 per share, according to Thomson Financial.
Chenault said in a statement that fallout from the weakening economy accelerated last month with consumer confidence dropping, unemployment rates rising and home prices falling at “the fastest rate in decades.”
PROBLEMS
In a conference call with analysts, American Express executives said the company had begun to notice problems even among cardholders with credit scores ranging from 650 to 750, and those who hold mortgages on multiple properties. As a general rule, those with a credit score above 650 receive the lowest interest rates.
The pinch felt by American Express’ superprime cardholders mirrors a similar trend among borrowers at JPMorgan Chase & Co.
The bank said last week that even its more creditworthy borrowers were failing to make their mortgage payments — the charge-off rate for prime mortgages nearly doubled from the first quarter to the second.
JPMorgan CEO Jamie Dimon said he expected those losses could triple during the remainder of the year.
If economic conditions worsen, American Express said it would be forced to add to its credit reserves.
Quarterly revenue rose 8 percent to US$7.48 billion, slightly below analysts’ estimate of US$7.6 billion. Revenue was boosted by strong growth in the company’s international card services segment, as well as its global network and merchant services division and global commercial services unit.
Revenue from its international card services division increased 20 percent to US$1.3 billion thanks to higher cardmember spending and borrowing.
American Express no longer forecasts long-term earnings per share growth of between 4 percent and 6 percent, based on expectations of continued economic uncertainty and higher write-off levels. The company expects third and fourth-quarter write-off rates to be higher than last month’s levels.
The lender also hinted at various cost-trimming initiatives, including possible job cuts, that would result in restructuring charges in the second half of the year.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique