Earnings Preview: Loan losses seen easing at AmEx

By SARA LEPRO

posted: 34 DAYS 21 HOURS AGO

Text SizeAAA

NEW YORK -American Express Co. reports earnings for its third quarter on Thursday after the market closes. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: American Express is poised to report better credit trends in the third quarter, which would be a first among its peers and a welcome sign after several periods of rising loan losses.

American Express has said it expects the chargeoff rate, or the rate of loans it considers won't be repaid to total loans, to dip below 10 percent in the third and fourth quarters, after hitting 10 percent in the second quarter. The upbeat forecast is based on improving early delinquency rates.

But even if the rate of losses on credit card loans falls below 10 percent, it would still be well above the 5.9 percent rate in the third quarter of last year.

The New York-based credit card lender first offered a glimmer of hope when it reported second-quarter results this summer, saying the decline in cardholder spending moderated somewhat in June, and that the number of cardholders falling behind on payments, bankruptcy filings and the level of loan write-offs came in better than expected.

The company later said the rate of losses on its credit card loans slowed in July.

Nearly all lenders have seen more customers fall behind on their monthly payments as the economy falters and unemployment rises. But AmEx, which has traditionally catered to a more affluent clientele, has been weathering the economic downturn better than many of its peers.

Bank of America Corp., another major credit card lender, said last week that it has begun to see delinquencies among its credit card loans level off, but credit costs remain high.

JPMorgan Chase & Co. offered a bleaker outlook, saying its credit card loss rate is expected to reach 10.5 percent in the first half of 2010 and could go higher depending on the unemployment rate.

BY THE NUMBERS: On average, analysts are expecting third-quarter earnings of 37 cents per share on revenue of $5.9 billion, according to a poll by Thomson Reuters. That would compare with a profit of 70 cents a share and revenue of $7.16 billion a year earlier.

If analysts are correct, it would be the eighth straight quarter of profit declines at the company.

ANALYST TAKE: In a recent research note, FBR Capital Markets analyst Scott Valentin said American Express' credit performance has far exceeded his expectations. Improving credit trends should help it return to more normalized earnings sooner than other credit card lenders, even as early as next year.

"While we still believe that industry losses will not peak until second quarter of 2010, it appears that American Express has managed to right the ship much faster than peers," he wrote.

Fox-Pitt Kelton analyst Bill Carcache is also upbeat going in to the results, calling for earnings of 46 cents per share, well above the consensus estimate. He expects global billed business to decline about 16 percent year-over-year, mirroring the declines in the first and second quarters.

WHAT'S AHEAD: Company president Alfred F. Kelly Jr. plans to step down early next year. He has been president and head of the global consumer group since 2007.

With Kelly leaving, American Express' global consumer, small business and network businesses will report to Edward Gilligan, who is a vice chairman at the company.

STOCK PERFORMANCE: During the third quarter, American Express shares gained 46 percent. Year-to-date, the stock is up about 93 percent.

2009-10-21 06:54:51