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American Express releases dazzling 4Q results

by Peter Andrew
American Express releases dazzling 4Q results

A recent IndexCreditCards.com news blog urged sensitive readers to stop shedding tears for credit card companies. Those card issuers may still have some problems, and they’re generally not as strong as they were before the Great Recession, but they’re doing just fine. Now, as American Express publishes its fourth-quarter results, we learn that one is doing much better than just fine.

American Express results

Compared with 2010, the net income in 2011 of AmEx’s global operations was up a staggering 22 percent to $4.935 billion. The company’s U.S. Card Services division didn’t do as well, but was still healthy. Its 2011 net income increased by a more modest 4 percent year-on-year to $727 million. However, its total expenses actually fell by 4 percent, which is something of an achievement given the enrichments to its rewards credit cards programs during that time. That’s partly explained by a 10-percent reduction in salaries, employee benefits and other operating expenses.

The one fly in the ointment for the division’s results was an enormous leap in provisions for losses. They came in at $269 million last quarter, compared with $111 million during the same period in 2010. However, that may not be as scary as it sounds. It’s partly due to AmEx customers borrowing more (which is a good thing from the company’s point of view, providing they pay the money back), but is also a result of an unusually big release of provisions in that last quarter in 2010. Certainly, American Express says that its net write-offs were down in the last quarter, and that “credit indicators continued to be at historically low levels.”

Speaking of the business as a whole, AmEx chairman and CEO Kenneth I. Chenault commented in a press release:

Cardmembers spent a record amount on their American Express cards, continuing a trend that has translated into overall share gains during the last two years. Billed business rose 11 percent, showing broad-based improvements from the strong levels of a year ago. Online spending was strong as we capitalized on the accelerating popularity of digital commerce. Revolving credit balances grew, but at a much slower rate than spending as Cardmembers continued to manage their debt and household finances more cautiously. Credit quality remained excellent, with past-due loans and write-offs at historically low levels.

Credit card debt at bay — for now

Of course, American Express is uniquely positioned to ride out any future problems with credit card debt. Its customer base is likely to be more affluent and financially secure than any other credit card company’s, and it’s not mining the subprime market for new business.

However, right now, few card issuers need worry about defaults and delinquencies. On Jan. 18, Moody’s published a report on the sector that revealed that charge-off rates (when issuers write uncollectible debt off their books, and pass it on to collection agencies) declined nearly 5 percent during 2011, the fastest fall the credit research company has observed since it started monitoring these figures more than 20 years ago. And it suggested that both delinquencies and early stage delinquencies “are now at new all-time lows.” The same Moody’s report went on:

We expect the improvement in credit card performance will continue in 2012. Revolving consumer credit will increase moderately on a year-over-year basis for the first time in three years, growing by about 6% in 2012, both as a result of new card originations and higher spending.

So things are looking good for credit card companies, and set to look even better.

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