Magazine article American Banker

AMEX Trims Reserves as Its Card Losses Dip

Magazine article American Banker

AMEX Trims Reserves as Its Card Losses Dip

Article excerpt

Deteriorating credit quality at specialty finance companies has been a big concern for investors this earnings season, but on Monday American Express Co. bucked the trend and reported lower loss rates and provisions.

It lowered its reserve for loan losses in the fourth quarter by 6%, to $1.3 billion from a year earlier, and said that the loss rate in its revolving card portfolio improved 15 basis points, to 5.5%.

Losses in the charge card portfolio fell 40 basis points, to 0.32%, and profits in the three months rose 130%, to $683 million, from a year ago, thanks to better business in the card unit (restructuring charges and 9/11 had a big impact on the previous year's results). Analysts had expected earnings to come in at 49 to 53 cents, according to Thomson First Call, and American Express beat the consensus by a penny.

Amex's stock, which has felt the sting of poor credit quality reports at other credit card companies even though Amex has a more upscale clientele, got an immediate boost.

Shares of American Express, which is a component of the Dow Jones industrial average and thus had fallen along with the broader market over fears of a war with Iraq, rose 0.16% right after the earnings announcement. But it ended Monday down 0.83%.

Less than a week ago, MBNA Corp. surprised investors when it said it had been forced to beef up its loan-loss reserve by $227 million in the fourth quarter, to $1.4 billion. The Wilmington, Del., company missed analyst consensus by 5 cents, reporting profits of $ 540.2 million.

Amex's discount revenues -- fees garnered from merchants when customers use the card -- rose 11%, to $2.1 billion. Card fees rose 2.3%, to $435 million, and finance charges rose 3%, to $382 million.

"American Express has delivered again," said Jennifer S. Scutti, an analyst with Canadian Imperial Bank of Commerce's CIBC World Markets. …

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