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American Express Q1 profit soars

22 January 2010  |  3577 views  |  0 Source: American Express

American Express Company (NYSE: AXP) today reported fourth-quarter income from continuing operations of $710 million, up 132 percent from $306 million a year ago.

Diluted earnings per share from continuing operations were $0.59, up 127 percent from $0.26 a year ago.

Net income totaled $716 million for the quarter, up 198 percent from $240 million a year ago. Diluted per-share net income of $0.60 was up 186 percent from $0.21 a year ago.

Consolidated revenues net of interest expense were $6.5 billion, on par with the year-ago quarter.

Consolidated provisions for losses totaled $748 million, down 47 percent compared to $1.4 billion in the year-ago period. The decline reflected continued improvement in credit quality during the latter part of 2009.

Consolidated expenses totaled $4.8 billion, on par with the year- ago quarter. This quarter's results reflected higher investment in business building initiatives and the benefits of the company's reengineering initiatives. The year-ago quarter included a significant reengineering charge.

The company's return on average equity (ROE) was 14.6 percent, down from 22.3 percent a year ago.

"We ended the year on a positive note with cardmember spending up 8 percent and credit indicators showing further signs of improvement," said Kenneth I. Chenault, chairman and chief executive officer.

"Fourth quarter results reflected the diversity of our business model that includes issuing cards, building business for merchants, operating a global payments network and delivering high-value services to our customers. Earnings were well above the depressed levels of 2008, capping a year when we delivered on each of our three main priorities. We stayed consistently profitable, built a more liquid funding base and invested selectively in the business.

"This progress, and the underlying strength of our franchise allowed us to maintain our dividend at a time when many others cut or eliminated their quarterly payment to shareholders."

"We still face the challenge of high unemployment levels, depressed real estate values, and shrunken household balance sheets, but the overall economy and our company are in stronger shape than they were a year ago.

"While the economic recovery now underway is likely to be modest, we expect it to continue and have begun to shift our focus to growing American Express for the longer term."

"We aim to extend our payments business, offer new fee based services, and accelerate our progress in the world of emerging payments. At the same time, we will focus on creating a more efficient cost structure and delivering superior service that strengthens our relationships with cardmembers, merchants and business partners. We continue to see opportunities to extend our market leadership and distinguish American Express from its competitors."

During the fourth quarter, non-U.S. revenues, provisions and expenses were higher due to the translation effects of a comparatively weaker U.S. dollar.

Significant items in the year-ago fourth quarter included:

* $421 million ($273 million after-tax) of reengineering costs, primarily related to severance and other costs associated with staff reductions, and
* a $106 million ($66 million after-tax) increase in the company's Membership Rewards reserve, in connection with the company's extension of its partnership agreement with Delta Air Lines.

Discontinued operations

Discontinued operations for the fourth quarter generated a gain of $6 million compared with a loss of $66 million during the year-ago period, which primarily reflected mark-to-market adjustments within the American Express International Deposit Company investment portfolio.

Segment Results

U.S. Card Services reported fourth-quarter net income of $365 million, up from $64 million a year ago.

Total revenues net of interest expense for the fourth quarter decreased 4 percent to $3.1 billion, driven by lower commissions and fees, as well as lower net card fees, partially offset by slightly higher discount revenue.

Provisions for losses totaled $346 million compared to $1.1 billion in the year-ago period. The provision for the current quarter reflected lower loan volumes and improvements in charge card and lending credit trends. On a managed basis1 the net loan write-off rate was 7.5%, down from 8.9% in the third quarter and up from 6.7% a year ago. Owned net write-offs were 8.0% in the quarter, down from 9.8% in the third quarter and up from 7.0% a year ago.

Total expenses increased 3 percent. Marketing, promotion, rewards and cardmember services expenses increased 8 percent from the year-ago period, driven by higher investment spending on marketing initiatives and higher rewards costs. Salaries and employee benefits and other operating expenses decreased 3 percent from the year-ago quarter, which included a reengineering charge.

International Card Services reported fourth-quarter net income of $73 million, up from $36 million a year ago.

Total revenues net of interest expense increased 11 percent to $1.2 billion, driven by increased cardmember spending, increased net interest income and higher net card fees.

Provisions for losses rose 33 percent to $324 million from $243 million a year ago, reflecting higher reserve levels.

Total expenses decreased 5 percent. Marketing, promotion, rewards and cardmember services expenses increased 23 percent from year-ago levels, driven by increased marketing investments and higher volume-related rewards costs. Salaries and employee benefits and other operating expenses decreased 19 percent from the year-ago quarter, which included a reengineering charge.

Global Commercial Services reported fourth-quarter net income of $117 million compared to a net loss of $7 million a year ago.

Total revenues net of interest expense increased 6 percent to $1.1 billion, reflecting increased spending by corporate cardmembers.

Provisions for losses totaled $37 million, down 46 percent from $69 million a year ago.

Total expenses decreased 12 percent. Marketing, promotion, rewards and cardmember services expenses increased 24 percent from the year-ago period, reflecting higher rewards costs. Salaries and employee benefits and other operating expenses decreased 15 percent from the year-ago quarter, which included a higher reengineering charge.

Global Network & Merchant Services reported fourth-quarter net income of $185 million, down from $215 million a year ago.

Total revenues net of interest expense increased 7 percent to $1 billion, reflecting higher merchant-related revenues, as well as an increase in revenues from Global Network Services' bank partners.

Total expenses increased 11 percent, driven by increased brand and merchant-related marketing investments. Salaries and employee benefits and other operating expenses decreased 4 percent from the year-ago period, which included a higher reengineering charge.

Corporate and Other reported a fourth-quarter net expense of $30 million, compared with a net expense of $2 million last year. The results for both periods reflected income of $220 million ($136 million after-tax) for the previously announced MasterCard and Visa settlements. This quarter reflected in part a $63 million real estate expense related to certain lease exit costs and the impact of higher interest expense. The year-ago quarter included a reengineering charge.

View the figures here:

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