Amex swipe down as loan loss reserves upend bright earnings outlook

Oct 21 (Reuters) – American Express (AXP.N)’s better-than-expected third-quarter provision overshadowed strong quarterly results and full-year earnings forecasts, driving the company’s shares up on Friday. fell more than 6%. .

Amex secured $778 million in reserves as loans rose and concerns over the economic impact grew, compared with analysts’ average estimate of $604.1 million.

“We are keeping an eye on various signals across the economy and have plans to pivot if the business environment changes dramatically,” said Amex Chief Executive Officer Stephen Squeri. .

The Federal Reserve has hiked interest rates at its fastest rate in decades to keep inflation in check, raising fears of slowing growth and a recession.

“We are concerned about credit quality moving forward,” said Thomas Hayes, chairman and managing member of investment firm Great Hill Capital.

However, higher interest rates are benefiting lenders as the average annual interest rate on credit cards hit a 30-year high this month, according to data from Bankrate.com.

AmEx’s third-quarter net income rose 3% to $1.88 billion, or $2.47 a share, beating Street’s estimate of $2.41, according to Refinitiv IBES data.

Overall cardmember spending increased 21% and revenue increased 24% to $13.6 billion. This is fueled by the growing number of millennials and GenZ customers.

The company was also supported by strong growth in travel and entertainment, with spending in this segment’s international markets surpassing pre-pandemic levels for the first time on an adjusted basis.

We expect full-year earnings to be higher than our previous estimate of $9.25 to $9.65 per share as borders reopen after the pandemic lockdowns and demand for both leisure and business travel increases. .

“American Express is an economically sensitive name, but so far economic concerns don’t seem to have had much of a negative impact,” said Morningstar equity analyst Michael Miller.

Reported by Mehnaz Yasmin and Niket Nishant of Bengaluru.Editing: Shinjini Ganguly

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