By Aparajita Saha-Bubna
Of DOW JONES NEWSWIRES
American Express Co. (AXP) said it would invest a portion of funds in its loss reserve to grow business--instead of adding the funds back to its bottom line--as the quality of its credit card loans improves.
The company plans to use some funds from its loss provision "to invest in long-term growth of the franchise," said Dan Henry, AmEx's chief financial officer, during a discussion of the company's third quarter results Thursday evening.
AmEx's third quarter results underscore improvements in key measures: The volume of souring card loans, although still at historically high levels, fell from the earlier quarter. Furthermore, consumers at least a month behind payments--a key gauge of future losses--also fell from the second quarter.
Decelerating growth in delinquencies and a shrinking card portfolio as the New York firm reins in credit allowed AmEx to squirrel away 13% less for potential losses than in last year's third quarter. As of Sept. 30, the company's provision for losses totaled $1.2 billion.
For the third quarter, the company wrote off 8.9% of its U.S. card loans, down from 10% in the second quarter and up from 5.9% in last year's third quarter. Meanwhile, about 4.1% of the company's U.S. cardholders were a month behind on their payments, an improvement from 4.4% as of June 30.
AmEx shares, which were up 3.82%, at $36.44 at the close of regular trading on the New York Stock Exchange, recently traded at $36.10 in after-hours trading.
Unlike other card companies, AmEx both issues cards and processes transactions. It issues both charge cards requiring a monthly payoff and credit cards on which customers can carry a balance. Therefore, a big chunk of its revenue comes from fees it charges banks and merchants, such as grocery stores or gas stations, to process card payments. But as economic woes and unemployment grow, consumer spending slows, eating into the fees that AmEx earns from transactions.
As a result, the company reported third quarter net income earlier Thursday of $640 million, or 53 cents a share, down from $815 million, or 70 cents a share, a year earlier.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com