AmEx announces increase in quarterly profits

Despite many Americans curtailing their spending, as well as new restrictions imposed on credit card-issuing banks by the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, American Express reported that their second quarter 2010 profits had increased by about 200 percent from last year. On July 23, 2010, American Express announced that their quarterly net income was around $1 billion, which, while short of the predicted tripling of their profit, still represented a large increase from the $367 million reported for the second quarter of 2009.

A large part of this jump in profits was due to card member spending, which has gone up 16 percent from last year, due in part to hopes of improved credit ratings due to CARD Act reforms. In the first quarter of 2010, American Express consolidated much of its securitized card member loans, as well as other debt, and fewer card holders defaulted on their loans as well. These factors contributed to a reduction in losses for AmEx, which saw only $652 million in losses this quarter, as compared to $1.6 billion during the same period of time last year.

Kenneth I. Chenault, the chairman and CEO of American Express, noted that corporate card members had increased their spending the most, and tended to pay their balances off completely each month. He also stated that many smaller business accounts paid off outstanding debt this quarter, while at the same time borrowing less. Some of the profits reported therefore reflect a shift in American Express' revenue from high-risk loans to lower-risk fee-based revenues, as well as charge- and pay-in-full products.

Many of American Express' segment companies showed overall improvement in profits, including U.S. Card Services, International Card Services, Global Commercial Services, and Global Network and Merchant Services.

American Express is the second-largest credit card company in the United States, and their quarterly report may be seen as taking the pulse of the American economy as a whole. While the recession is by no means over, there does seem to be a shift in spending habits which could signal a slow recovery.

-Seth Berger