American Express Co. experienced solid card-spending growth and triumphed in a long legal battle in 2007. As with other card companies, though, it also endured losses from a housing-related economic downturn, especially during the latter part of the year.

Revenues for AmEx's U.S. Card Services unit in 2007 were $16.7 billion, up 16.5% compared with $14.34 billion in 2006. Net income fell 15.3%, to $1.82 billion from $2.15 billion. AmEx said spending fell sharply during the final month of the year as the effects of the subprime mortgage crisis and a U.S. economic downturn caused consumers to pull back on card spending See chart.

AmEx's billed business, or annual charge volume, last year in the U.S. increased 12.9%, to $459.3 billion from $407 billion, and total cards-in-force in the U.S. totaled 52.3 million at the end of 2007, up 8.7% from 48.1 million.

AmEx spent $5.14 billion on marketing, promotions and rewards in the U.S. in 2007, up 15.8% compared with $4.44 billion for 2006. The company said rewards accounted for about 68% of all marketing, promotion and rewards costs, a trend that has been accelerating since around 2002 when rewards represented just 50% of those expenses.

AmEx increased its provision for losses in the U.S. to $2.99 billion, up 84.6% from $1.62 billion in 2006 in anticipation of rising charge-offs caused by the slowing economy.

In AmEx's international card services unit, 2007 revenues rose 11.4%, to $5.07 billion compared with $4.55 billion in 2006. Income for the segment declined 15.2%, to $291 million compared with $343 million a year earlier.

Billed business outside the U.S. was $188 million, up 21.5% from $154.7 billion in 2006. Total cards-in-force outside the U.S. rose 14%, to 34.1 million in 2007 compared with 29.9 million at the end of 2006.

AmEx reduced its provision for losses in the international sector by 4.7%, to $812 million from $852 million in 2006.

In late 2007, AmEx for the first time opened its closed-loop network to a third party by inking a merchant-processing agreement with First Data Corp. In subsequent months AmEx announced additional card-processing deals with U.S. Bancorp's Nova subsidiary and Heartland Payment Systems Inc.

 The agreements mean merchants could receive Visa, MasterCard, AmEx and Discover transaction data on one statement, and AmEx executives said the simplified reporting could prompt more smaller merchants to accept AmEx cards.

 AmEx made some key moves to streamline the company in June, reorganizing itself into two distinct entities, the global consumer group and the global business-to-business group. The company also exited the health care-payments business. AmEx, which entered the sector in 2006, said the market was not growing as quickly as expected.

In November AmEx struck a legal victory when Visa Inc. agreed to settle a federal antitrust lawsuit AmEx filed three years earlier. AmEx alleged that Visa, MasterCard Worldwide and their member banks colluded to block AmEx from issuing bankcards in the U.S. Visa agreed to pay AmEx $945 million, with additional installments of $70 million per quarter, up to a maximum total of $1.12 billion. At deadline, MasterCard remained the sole defendant in the lawsuit.

AmEx continued efforts to expand card usage by empowering banks to offer its cards through agent relationships. Among third-party financial companies issuing AmEx cards are Citigroup Inc. and GE Money.

Broadening its acceptance should not affect AmEx's image as a card with superior customer service, says Bruce Harting, an analyst with the equity research firm Lehman Brothers.

"AmEx should gain broader acceptance while retaining its own relationships with merchants and its brand cachet," he says.  CP

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