American Express sees decline in profits due to loan losses despite record revenue

High spending and uncertain economy leads to billion-dollar loan loss reserves to American Express

Apr 20, 2023 - 09:32
Apr 20, 2023 - 09:33
 66
American Express sees decline in profits due to loan losses despite record revenue
American Express

American Express reported a 13% decline in profits for the first quarter of the year compared to the same period last year, despite achieving record quarterly revenue. The credit card company had to set aside over $1 billion for potentially bad loans, reflecting the uncertainty of the economy for many banks. American Express's major credit card competitors also had to set aside money for covering bad loans, as consumers carry higher balances and are not paying off their cards.

American Express made a profit of $1.82 billion, or $2.40 a share, down from $2.1 billion, or $2.73 a share, a year ago. Although the revenue increased by 22% from a year ago, and the total network volumes went up by 14%, the results missed analysts' forecasts of around $2.60 a share, according to FactSet.

Travel and entertainment spending by American Express card members increased by 39%, which is usually the most profitable sector for the company. However, with high inflation and signals of a strong job market but low economic growth, the company put more money into its rainy fund. Approximately 1.2% of AmEx accounts were more than 30 days past due, up from 0.8% of accounts a year earlier.

Steve Squeri, the company's Chairman and CEO, said, "Our customers have been resilient thus far in the face of slower macroeconomic growth, elevated inflation and higher interest rates, with credit performance remaining best-in-class. That said, we're mindful of the mixed signals in the external environment."

The total revenue of American Express rose to $14.28 billion from $11.74 billion in the same period last year. Nevertheless, shares of the company dropped by about 1.3% in premarket trading due to the earnings report.

Here are Some Important Key Facts:

  • American Express had to set aside more than $1 billion for potentially bad loans due to uncertainty in the economy.
  • The decline in profits was despite achieving record quarterly revenue.
  • American Express's major credit card competitors also set aside money to cover potentially bad loans.
  • American Express added 3.4 million new accounts in the first quarter of the year.
  • The company saw a 39% increase on travel and entertainment spend by its card members, which is often AmEx's most lucrative place for its customers to spend their money.
  • Roughly 1.2% of AmEx accounts were more than 30 days past due, up from 0.8% of accounts a year earlier.
  • American Express executives have repeatedly said they don't have worries about consumer health, and that increases in credit losses are just their balance sheet normalizing after all the stimulus from the pandemic.
  • Total revenue at AmEx rose to $14.28 billion from $11.74 billion in the same period a year earlier.
iShook Opinion Curated by iShook Opinion and guided by Founder and CEO Beni E Rachmanov. Dive into valuable financial insights at ishookfinance.com for expert articles and latest news on finance.