American Express Co. reported this week that credit card defaults fell in July for a second consecutive month, thanks to lower-than-expected bankruptcies. The company estimated that its charge-off rate fell to 9.2% during the month from 9.9% in June. During an investor meeting, Chief Financial Officer Daniel Henry said the company's charge-off rate should end the year below 10%.

Last month, citing lower per-customer spending and higher charge-offs, AmEx reported a 48% drop in net income for the second quarter ended June 30 - to $337 million from $653 million during the same period a year ago, according to CCR Newsline. Total revenues in the quarter declined by 18.7% to $6.1 billion from $7.5 billion.

AmEx's U.S. Card Services unit reported a $200 million loss for the quarter, compared with net income of $21 million a year ago. Sales volume in the U.S. totaled $84.1 billion, down 15.9% compared with $100 billion a year ago, while the number of basic cards in force declined by 9.7% to 29.8 million from 33 million, as AmEx closed thousands of inactive accounts during the quarter.

But referring to the new report that charge-offs declined in both June and July, CEO Kenneth Chenault cautioned that higher bankruptcies and unemployment figures would still weigh on defaults. He said the next six months to 18 months will remain challenging for business but the company expects the U.S. economy to start recovering in the coming months.

Unemployment - a key factor in credit card defaults - is seen peaking at around 10.1% in the first quarter of 2010. It rose in June to 9.5%, the highest level in nearly 26 years. Bankruptcy filings, at the highest level in three years, are also expected to keep growing in the second half of 2009.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry