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AmEx Profits Fall 9 Percent as Customers Fall Behind on Payments

An American Express logo is attached to a door in Boston's Seaport District on July 21, 2021. (Steven Senne/AP Photo)

NEW YORK—American Express saw its fourth-quarter profits fall by 9 percent, as the credit card giant had to set aside significantly more money to cover potentially bad loans. The company saw charge offs and delinquencies rise, a troubling sign for a company whose customer base is usually well-to-do and extremely creditworthy.

But the company did announce it planned to raise its quarterly dividend and also forecast higher-than-expected profits for 2023, which helped lift the stock in early trading as investors seemed to look past the delinquencies and more at how cardmembers were still strongly spending on their accounts.

The New York-based company said it earned a profit of $1.57 billion in the quarter, or $2.07 a share, that is down from $1.72 billion, or $2.18 a share, in the same period a year earlier. That is below what analysts had forecasted.

While AmEx saw a double digit rise in card usage from a year ago—cardmembers spent $413.3 billion on their cards last quarter—the increase in revenue was eclipsed by a noticeable deterioration in the financial health of AmEx customers.

The company set aside $1.03 billion to cover potential credit losses, compared to only $53 million in the same period a year earlier. The company wrote off 1.3 percent of its total loans, compared to only 0.8 percent a year earlier. The number of card members who were 30 days or more past due also rose.

AmEx CEO Steve Squeri said in a statement that the company’s credit metrics “remained strong” in the quarter however. Squeri told analysts on a call with investors that the company is seeing few signs of a recession in the short-to-medium term, noting that cardmember spending continues to remain strong.

Over the past several years, AmEx has moved its traditional charge card business model—where a customer must pay off their entire balance each month—to a model closer in line with traditional credit card companies that encourage customers to keep a balance and the company collects interest off of that balance. Worldwide cardmember loans were $108 billion last quarter, up 22 percent from 2021.

While investors have applauded the higher profits from AmEx, the adoption of a business model that encourages customers to keep a balance also exposes the company to losses if the economy were to sour. Investors did ask executives if the recent white collar layoffs are impacting their business at all, and executives said it did not appear so and that the rise in credit losses was mostly a normalization from the pandemic, when customers paid off their credit cards.

Jeff Campbell, AmEx’s chief financial officer, said that the increase in delinquencies was expected and they do not expect credit losses to get to where they were before the pandemic. Other credit card companies have seen much larger rises in delinquencies, notably Discover Financial, whose stock fell sharply this week after it reported its results.

Noting the growth in cardmember spending and an expectation that delinquencies will level off this year, AmEx did forecast a full-year profit between $11.00 and $11.40 a share for 2023. It also raised its quarterly dividend to 60 cents a share from 52 cents per share.

In morning trading, shares of American Express jumped 9.7 percent to $170.98.

By Ken Sweet