A string of cobrand credit card wins is getting expensive for American Express Co.
Card-member rewards climbed 12 percent to $1.98 billion in the fourth quarter, the most in at least seven years, according to data compiled by Bloomberg. During 2017, Amex won dual-issuing rights with JPMorgan Chase & Co. for Marriott International Inc.’s suite of cards and exclusive rights to issue credit cards for Hilton Worldwide Holdings Inc., ending an agreement in which it shared the business with Citigroup Inc.
Amex stock dropped 2.2 percent to $99.86 after it said it expects earnings per share of $6.90 to $7.30 in 2018, below the $7.32 average estimate of 14 analysts surveyed by Bloomberg. The company said it expects its effective tax rate for the year to be 22 percent.
Results were hurt by a $2.6 billion charge related to the Republican tax bill, the company said. The charge crimped regulatory capital, and Amex announced it will suspend share buybacks in the first half as it rebuilds that capital.
“Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express,” Amex Chief Executive Officer Kenneth Chenault said in a press release. “Given the momentum in the business and the anticipated benefit of a lower tax rate, we now expect to invest up to $200 million more in 2018 than we originally planned for customer‐facing growth initiatives.”
Amex has been working to ink cobrand deals after parting ways with Costco Wholesale Corp. and JetBlue Airways Corp. sparked the card issuer’s worst stock slump since the financial crisis. About $42 billion of cobrand credit card deals are open for bid in 2018 and 2019, meaning there are many opportunities for Amex to gain share in the market, according to analysts at Susquehanna Financial Group.
Other card issuers have signaled that they’re pulling back on rewards. Citigroup, which won Costco’s business from Amex in 2015, said on Tuesday it will scale back promotional offers and attempt to encourage customers to keep a balance on cards so the lender can earn more from interest and fees. JPMorgan said last week that it had finished renewals of its cobrand card deals.
Amex’s quarterly results swung to a loss of $1.2 billion, or $1.41 a share, from profit of $825 million, or 88 cents, a year earlier. Adjusted earnings per share, which excluded the impact of the $2.6 billion charge, were $1.58. Analysts surveyed by Bloomberg had estimated adjusted earnings would be $1.54. The company set aside $833 million for bad loans, an 8.3 percent boost compared with the prior three-month period, as delinquencies climbed. Worldwide billed business, a measure of customer card spending, increased 11 percent from a year ago to $291.4 billion. The average discount rate, a measure of the fees Amex charges merchants, slipped to 2.4 percent from 2.42 percent in the prior quarter.