American Express Chief: Spending Up in October; Worst is Over

American ExpressAmerican Express, the largest U.S. credit card company, today announced that credit card spending increased in October, compared to September – a sign that the worst is over in the long-running financial crisis.
The was the headline-making assessment delivered by Amex Chief Executive Kenneth Chenault at a financial services conference.
 “The trends in spending are encouraging, and there are signs that the recession may be approaching an end,” Chenault said.
American Express card spending, adjusted for foreign-exchange factors, slipped just 1 percent in October, compared to a year earlier, he said. This comes after a decline of about 5 percent in September and almost 10 percent in August. The news sent shares of American Express to a 14-month high.
Chenault’s comments and the company’s third-quarter results last month highlight improvements on several fronts:

  • The pace of decline in the amount Amex cardholders spend is slowing;
  • The volume of card loans in default, although at still historically high levels, has fallen from the previous quarter;
  • Consumers at least 30 days behind in payments – a key barometer of future losses – also decreased from the second quarter.

But Chenault cautioned that the economy won’t be returning to normal because of a “new normal with a number of substantial changes. A premium will be placed on lean flexible companies.” 
Amex and other major card issuers have taken major losses from cutbacks in spending and customers who have or are about to fall behind on their bills. Unlike other card issuers, American Express both issues cards and processes transactions. It issues both charge cards requiring a monthly payoff and credit cards on which customers can carry a balance. Because of this, much of its revenue comes from fees it charges banks and merchants to process card payments.
But as economic conditions worsened, and the unemployment rate continues to climb, consumer spending slows. And that is siphoning away the fees that Amex earns from transactions.
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