The latest news from American Express, that its customers are increasingly falling behind in payments, is a negative indicator for two reasons. First, the deterioration exceeded Amex’s forecasts, and comes even though the company has been aggressive in cutting credit limits to customers that look at risk of getting into difficulty. Second, the card issuer targets affluent customers, so the slide confirms that consumers at all income levels are feeling the effects of the slowdown.
American Express Co., the biggest U.S. credit-card company by purchases and cash advances, said customers are falling further behind on their debt, signaling the economy is worsening.
“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” Chief Executive Officer Kenneth Chenault said in a statement today announcing the company would receive as much as $1.8 billion in a settlement with competitor MasterCard Inc…
“If you look at the employment situation, clearly that’s deteriorated, and consumer confidence is down as well,” said Sanjay Sakhrani, an analyst with KBW Inc. in New York who has a “market perform” rating on the stock. “Both play a key role in the credit-card industry.”…
American Express declined 20 cents to $41.90 at 11:30 a.m. in New York Stock Exchange composite trading.
First-quarter loss provisions in the company’s U.S. card business rose 52 percent to $881 million as net income declined 11 percent to $974 million. The company will probably post adjusted earnings per share of 83 cents in the second quarter, compared with 88 cents a year earlier, according to 15 analysts surveyed by Bloomberg.
American Express’s affluent customers help shelter the company from problems of borrowers with the riskiest credit histories, Chenault said June 4.
Today’s statement didn’t specify the types of customers having the most trouble repaying loans, and spokesman Michael O’Neill declined to discuss who had the worst payment rates.
Defaults by cardholders worsened most in areas where U.S. home prices dropped by more than 5 to 10 percent, Chief Financial Officer Daniel Henry said in April in a conference call.