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NEW YORK (AP) — American Express’ fourth-quarter earnings fell 9%. This is because the credit card giants have had to set aside significantly more money to cover potential bad debt. The company is seeing an increase in charge-offs and delinquencies, a troubling sign for a company whose customer base is typically wealthy and highly creditworthy.
However, the company has announced plans to raise its quarterly dividend, predicting higher-than-expected earnings in 2023. their account.
The New York-based company said it posted earnings of $1.57 billion, or $2.07 per share, for the quarter, down from $1.72 billion, or $2.18 per share, in the same period last year. This is below analyst expectations.
While Amex’s card usage grew by double digits from a year ago (cardmembers spent $413.3 billion on cards last quarter), the increase in revenue was largely due to the financial health of Amex’s customers. It was overshadowed by serious deterioration.
The company set aside $1.03 billion to cover potential credit losses, compared with just $53 million in the year-ago quarter. The company has written off his 1.3% of the total loan amount, compared to his 0.8% in the previous year. The number of cardholders who are 30 days or more in arrears has also increased.
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However, AmEx CEO Steve Squeri said in a statement that the company’s credit metrics “remained strong” in the fourth quarter. Squeri told analysts on a conference call with investors that there were few signs of a recession in the short to medium term, and that cardmember spending remained strong.
Over the past few years, AmEx has changed the traditional charge card business model (where the customer has to pay the balance in full each month) to something more like a traditional credit card company that encourages the customer to maintain a balance and the company to collect it. has moved to Interest on that balance. Global cardmember loans last quarter he was $108 billion, up 22% from 2021.
Investors have lauded higher profits from AmEx, but adopting a business model that encourages customers to maintain balance also exposes the company to losses if the economy takes a turn for the worse. An investor asked management if the recent white-collar job cuts were affecting the business at all. Management said it didn’t seem so and that the increase in bad debt losses was a normalization from the pandemic as customers paid off their credit cards.
Amex chief financial officer Jeff Campbell said he had expected an increase in delinquencies and did not expect credit losses to reach pre-pandemic levels. Other credit card companies have seen large increases in delinquencies, notably Discover Financial, which saw its share price plunge after reporting earnings this week.
Amex forecasts full-year earnings of $11.00 to $11.40 per share in 2023, noting increased cardmember spending and expectations for flattening in delinquencies this year. He also increased the quarterly dividend from 52 cents per share to 60 cents per share. .
American Express stock rose 9.7% to $170.98 in morning trading.
Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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