AmEx profits nearly cut in half
According to Bloomberg report American Express Co. and Capital One Financial Corp. posted second-quarter profit declines of about 50 percent, sending their shares lower, as consumers reeled in spending and made fewer purchases with plastic.
American Express said second-quarter net income from continuing operations plunged 48 percent to $342 million as revenue slid 18 percent. Capital One’s profit excluding one-time charges fell by half to $224.2 million on a 5 percent decline in revenue, reported Bloomberg.
Still, the percentage of loans considered uncollectable continued to rise, particularly in its domestic card business, climbing to 10% from 8.5% in the previous quarter. American Express said net managed loan write-offs, or the cost of loans that will never be repaid, rose to 10 percent from 8.5 percent in the first quarter. Capital one wrote off 9.73 percent of U.S. card loans on an annualized basis last month, compared with 9.41 percent in May.
American Express cut costs tied to marketing and promotion almost in half. While the company said that write-offs on the credit side were not as high as expected, revenue needs to pick up for consistent growth to return, said Chief Financial Officer Daniel Henry, on the conference call after results.
“Both spending will have to improve quite a bit and write- off rates will have to improve quite a bit before we get to the point where we would be looking for normalized earnings,?Henry said.
Charge-offs typically track the U.S. unemployment rate, which rose to 9.5 percent in June, the highest since 1983. Moody’s said it expects the jobless rate to reach as high as 10.5 percent in 2010, and predicts charge-offs will peak at 12 percent to 13 percent at the same time, reported Bloomberg.
