Magazine article American Banker

Amex, Providian Say Marketing Is Paying Dividends

Magazine article American Banker

Amex, Providian Say Marketing Is Paying Dividends

Article excerpt

American Express Co. and Providian Financial Corp. both upped their marketing budgets considerably in the second quarter to maintain cardholders' spending volumes.

American Express, whose profits rose 15% from a year earlier, spent 32.5% more on marketing, $1.25 billion. That was its biggest marketing budget for a quarter in more than a year. Providian's profits rose 78.7%, and the subprime issuer spent $65.4 million on advertising and solicitation -- a 24.3% increase.

Deutsche Bank Securities upgraded American Express to "buy" from "hold" because of the earnings improvement, and Sandler O'Neill & Partners LP did the same for Providian.

But Michael D. Cohen, an analyst with Susquehanna Financial Group LLP, said it is not a given that the two companies will continue to post such solid results. Amex's transaction-based model exposes it to the commercial economy, while Providian's choice of target audience carries consumer credit risk, he said.

American Express' "marketing investments continue to drive success," Mr. Cohen said. At Providian, "loan growth is back, but it is still unclear as to how the new portfolio will ultimately season."

Goldman Sachs analyst Michael S. Hodes said in a research note Monday that American Express' report showed "continued evidence" of overspending on marketing and promotion.

The apparently high cost of administering its Membership Rewards loyalty program led some analysts to wonder whether it could eventually become a drag on earnings.

Gary Crittenden, Amex's chief financial officer, said the benefits would far outweigh the costs even if the program were extended to all cardholders. Last year 60% of Amex cardholders were enrolled in Membership Rewards. "It is helping us drive top-line earnings, reduction in attrition, and improvement in our credit losses," he said on a conference call Monday night. …

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