American Express Co. remains cautious about the economy and the current regulatory environment, but the Credit Card Accountability, Responsibility, and Disclosure Act will affect the company more than the financial reform, Dan Henry, AmEx executive vice president and chief financial officer, told analysts during a conference call on July 22 to discuss second quarter earnings.
The Credit CARD Act, most of which took effect in February, is “more significant for us because of the nature of our business model, which is not impacted by many aspects of the reform, such as potential debit-pricing adjustments,” he said.
Indeed, experts agree that AmEx is “probably the biggest winner” among its peers in recent payments industry regulatory developments (see story).
The card issuer, however, will still feel some effect from the financial reform because “there is a component to the Dodd-Frank Act giving merchants the ability to offer discounts for different payment types, to encourage the use of one over the other,” Beth Robertson, director of payments research at Javelin Strategy and Research in Pleasanton, Calif., tells PaymentsSource.
AmEx would be affected if a merchant offered a discount to consumers who pay for purchases with debit cards or even cash—basically any alternative payment that is not a credit card, Robertson adds.
Spending during the second quarter ended June 30 increased across all segments, including corporate cards, cards issued by AmEx bank partners, charge cards and premium cobrand products. Overall, total cardholder spending increased by 15.8%, to $175.3 billion for the quarter ended June 30 from $151.4 billion during the same period last year, and by 8.9% from $161 billion in the first quarter.
Despite an “uneven” economic environment, AmEx’s net income and billed business are back at, or near, their prerecession levels,” Kenneth Chenault AmEx chairman and CEO, noted in a news release outlining the company’s second quarter earnings.
For the remainder of this year, AmEx plans emphasize pay-in-full products, fee-based revenues and on expanding the company’s cardmember base, Chenault said.
AmEx’s U.S. Card Services unit posted net income for the quarter of $522 million; the unit reported a $153 million loss a year earlier caused primarily by the ailing economy. Total revenue net of interest expense was up 24.1%, to $3.6 billion from $2.9 billion.
U.S. billed business increased 14.2%, to $119.7 billion from $104.8 billion, while total cards in forced declined 1.6%, to 49 million from 49.8 million.
The net write-off rate on U.S. credit cards was 6.2%, down 380 basis points from 10% during the second quarter of 2009. The provision for loan losses decreased 56.8%, to $519 million from $1.2 billion.
AmEx’s International Card Services unit reported second-quarter net income of $160 million, up 105.1% from $78 million a year earlier. International billed business increased 19.3%, to $55.6 million from $46.6 million. Total international revenues net of interest expense was $1.1 billion, up 10.2% from $998 million, while total international cards in force rose 0.8%, to 39 million from 38.7 million.
The net write-off rate on international cards was 4.9%, down 260 basis points from 7.5%. International provisions for loan losses fell 47.2%, to $28 million from $53 million a year ago.
As a company, AmEx reported second-quarter net income $1 billion, up 196.7% from $337 million during the same period a year ago and up 13% from $885 million in the first quarter. Second-quarter income this year includes $93 million from MasterCard Worldwide and $43 million from Visa Inc. related to the litigation settlements stemming from lawsuits AmEx filed over the card brands’ exclusionary rules that illegally blocked AmEx from the U.S. bankcard market.
The company’s total revenues net of interest expense after provisions for loan losses increased 37.8% to $6.2 billion from $4.5 billion last year.
AmEx also increased expenses both domestically and internationally for marketing, rewards and card member services, which seems pretty notable, Robertson says. It seems as though “[AmEx] has realized the need to put more effort into marketing the company’s products,” she surmises.
The company increased its spending on cardholder rewards by 20%, to $1.2 billion from $1 billion last year, which the company attributes to greater rewards-related spending by cardholders and higher cobranding expenses. Total expenses increased to $4.6 billion, up 12.2% from a year ago.
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