American Express Co. and Capital One Financial Corp. continue to feel the effects of a difficult economy – with both posting drops in third-quarter net income.
AmEx yesterday reported a 21.5% drop in third-quarter net income, to $640 million from $815 million during the same period a year ago. Despite the company's eighth consecutive quarterly decline in net income, AmEx said in a statement that credit-quality trends are improving, and losses are beginning to level off. Total third-quarter revenues declined by 16.7%, to $6 billion from $7.2 billion, while AmEx cut expenses sharply across all units.
The company's U.S. Card Services unit reported net income of $109 million for the quarter ended Sept. 30, down 55.3% from $244 million a year ago, while revenues net of interest expense declined 17.1%, to $2.9 billion from $3.5 billion. The net managed charge-off rate on U.S. card receivables was 8.9%, up 300 basis points from 5.9% a year ago. AmEx's provision for loan losses was $850 million, down 9.7% from $941 million a year ago.
AmEx's International Card Services unit reported third quarter net income of $127 million, up 89.6% from $67 million. The net charge-off rate on international loans was 7.1% of international receivables, up 200 basis points compared with 5.1% a year ago. Loan-loss provisions were down 20.9%, to $250 million from $316 million.
While AmEx remains cautious about high unemployment levels, "we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging, and there are signs that the recession may be approaching an end," Kenneth I. Chenault, AmEx chairman and CEO, said in a statement.
Cap One's U.S. Card segment reported net income of $291.7 million for the third quarter ended Sept. 30, down 18.2% from $356.5 million during the same period last year. Total revenue decreased 3.3%, to $2.9 billion from $3 billion.
The card unit's net charge-off rate during the quarter was 9.59% of receivables, up 349 basis points from 6.1% a year ago, while its 30 days-plus delinquency rate increased by 119 basis points, to 5.53% of receivables from 4.34%.
"We expect to reach the peak of charge-off dollars in the next couple of quarters," Richard Fairbank, Cap One chairman and CEO, said during a conference call with analysts. "But to be clear, nearing a peak does not necessarily mean that we're nearing the beginning of a robust recovery."