Spending up, American Express benefits

24th July 2010  

Governments everywhere are monitoring economic signals very closely for signs that their economies are reliably crawling out of recession. But every time politicians go on the record to extort column inches conveying positive news, you can be sure that the next day there’s some hard evidence that if an economic recovery is underway, it’s still brittle, inconsistent and fragile.

One sound indicator that things are improving is independent information that consumers are out again spending money. Second quarter profit news out yesterday from credit card company American Express showed real growth. Net revenue climbed 13 percent during the quarter to some $ 6.86 billion (£4.5 Billion).

Net income was $1.01bn, up from $337m 12 months ago. Net income for the six months to end of June totalled some $1.9bn – considerably up from $774m.

American Express, the biggest card issuer worldwide by card purchases, targets affluent and well-to-do customers who handily seem to be leading the rebound in spending.  Profits for the period have tripled over the same period last year, helped also by a reduction in numbers of customers defaulting. American Express already had some of the lowest right-off rates in the industry.

Declining late payments allows lenders to improve profits by reducing future provisions for bad debt. AmEx set aside $652 million for future loan losses, 59 percent less than the year-ago quarter, and released $506 million from loss reserves.

Chief Executive Officer Kenneth Chenault said

“Improved credit indicators continued the year-long trend that began last spring. Our net income and billed business are back at, or near, their pre-recession levels.”

Total American Express card spending went up by some 16 percent, a total of $175.3 billion (£113.7 billion). Card holders spent an average of $3,288, an increase of 21 percent from a year earlier. AmEx set aside $652 million for future loan losses, 59 percent less than the year-ago quarter, and released $506 million from loss reserves.

Things are going less well at over at VISA and MasterCard. Although these are in fact the world’s biggest payments networks, recent legislation is putting serious pressure on the fees debit card issuers can charge to merchants, the so called “swipe” fees. American Express doesn’t issue debit cards, and therefore has remained untouched by the legislation.

In a typical week of turbulent news before many working in the financial sector head of on their summer break, the reaction to American Express’s upbeat news was met with a positive but still cautious reaction from the markets. Perhaps once they’ve digested the mainly encouraging news that the main European Banks passed the “stress tests” applied by Committee of European Banking Supervisors (CEBS) they may take a more optimistic position.

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