4Q Earnings: AMEX Volume Dip Continues; Slight Rise at Discover
Terris, Harry, American Banker
American Express Co. said the sudden slowdown in spending growth on its cards that appeared in December has continued this month.
Separately, Discover Financial Services said chargeoffs for its current fiscal year, which began Dec. 1, will be higher than the company's previous forecast. However, Discover said it experienced a slight rebound in spending volume since December, and it identified opportunities to enlarge its loan portfolio.
Daniel T. Henry, Amex's chief financial officer, said Monday night on a conference call to discuss fourth-quarter results that "things are dimensionally the same currently as they were at the time of our forecast" on Jan. 10, when the company warned it expected slower earnings growth and higher credit losses this year.
Under a scenario that anticipates "that macroeconomic indicators, such as employment, consumer spending and funding costs, do not deteriorate significantly from current levels," Mr. Henry said, Amex expects earnings from continuing operations to rise 4% to 6% this year; its "medium to long term" target is 10% to 12%.
The New York company also expects chargeoffs on its managed card portfolio of 5.1% to 5.3% this year, compared with 4.3% in the fourth quarter of 2007 and 3.3% in the fourth quarter of 2006.
Growth in spending volume "dropped about 300 basis points from a level that was running at about 13% ... over the course of December," Mr. Henry said. The decline "was probably a little bit more noticeable towards the end of December," and was driven by a 5-percentage-point fall in the United States that month, to 9%, from October and November. Amex expects spending growth of 8% to 10% this year.
However, the company's forecasts do not take into account the Federal Reserve Board's 75-basis-point rate cut last week, which Amex expects to provide some relief. …