SAN FRANCISCO (MarketWatch) -- A warning from American Express late Monday dented shares of rival credit-card companies, as investors fretted that the economic slowdown will increase loan losses across the industry.
American Express AXP reported second-quarter profit that fell short of analyst expectations, with the company setting aside $600 million in extra provisions to cover bad credit-card debt. See full story.
It also warned that it won't be able to meet its long-term financial targets until the economy improves. But conditions have weakened "significantly" since the beginning of 2008, especially in June, American Express Chief Executive Kenneth Chenault said.
Credit-card companies are being hit as slumping house prices, slowing economic growth and rising unemployment limit the ability of some customers to pay back debts racked up on their cards.
Earlier this decade, surging home values and low interest rates allowed many homeowners to refinance their mortgages and extract cash from their properties. That helped some pay off credit-card debt and prevented others from racking up big balances on their cards.
But since the housing bust began last year, the refinancing boom has ended and credit-card delinquencies have jumped.
In June, American Express warned that indicators of credit were continuing to deteriorate beyond its expectations.
The stock fell more than 10% Tuesday. The company's shares are down more than 40% in the past year, more than double the drop in the Standard & Poor's 500 index. See full story.
Rival firm Discover Financial Services DFS fell 8% to $13.99 during Tuesday morning trading. The company said in June that it expected higher charge-offs later this year. Like American Express, its stock is also down more than 40% in the past year. See full story.
Last week, Capital One Financial COF, another big credit-card company, reported a 40% drop in second-quarter net income. The shares fell 6.6% to $39.42 on Tuesday. The stock is down roughly 50% in the past year. See full story.
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