Magazine article American Banker

AMEX Warns of 18% Hit from Junk Bond Losses

Magazine article American Banker

AMEX Warns of 18% Hit from Junk Bond Losses

Article excerpt

American Express Co. warned investors on Monday that its first-quarter profits will probably fall 18% because of losses sustained in the junk bond market.

In a press statement, the company said it will be forced to take a $185 million pretax charge from the writedown and sale of high-yield debt held in the portfolio of its investment subsidiary, American Express Financial Advisors.

It said that per-share earnings should drop 18% from the 48 cents reported in the first quarter of 2000.

Analysts surveyed by Thomson Financial/First Call had been expecting Amex to post per-share earnings of 51 cents for the quarter.

But American Express did not stop there. It also told Wall Street that it expects earnings growth to come in under its previous projections of 12% to 15%, that earnings will probably be uneven from quarter to quarter, and that pressure on earnings will be pronounced in the first half.

American Express said that it expects a second-half earnings boost from a stronger economy and more market stability.

American Express Financial Advisors will report a first-quarter earnings decline of 80% as a result of losses in high-yield investments. It had $3.5 billion -- about 11% of its total portfolio -- in that area. The company said that it also expects losses to be substantially lower in the second half.

Analysts described the problem as largely confined.

"The bulk of the bad news" is in high-yield investments, said Bruce Harting, an analyst at Lehman Brothers. …

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