(Adds statement from company executive and details on earnings beginning in the first paragraph and updated stock price.)
By Aparajita Saha-Bubna and John Kell
Of DOW JONES NEWSWIRES
American Express Co. said customers reduced their spending by 11% in the third quarter, sending the company's quarterly net income down 21% as consumers buckle under the recession.
Still, the quarterly results underscore improvements in several important measures: The pace of decline in the amount AmEx cardholders spend is slowing and the volume of souring card loans 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.
"Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging and there are signs that the recession may be approaching an end," Kenneth I. Chenault, AmEx's chairman and chief executive, said in a statement.
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.
Shares were up 1.5% to $37 in late trading after closing up 4% Thursday.
American Express issues charge cards, which must be paid off each month, as well as credit cards that allow customers to carry a balance. Unlike most other card companies that either issue plastic or process the transactions, AmEx does both. 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.
Card issuers are also coping with sweeping legislation restricting certain fees and rate hikes that will bite into income. In response, many have tightened lending standards.
American Express reported earnings of $640 million, or 53 cents a share, down from $815 million, or 70 cents a share, a year earlier. Earnings from continuing operations excluding a 10-cent accounting benefit fell to 44 cents from 74 cents.
Revenue, net of interest expense, dropped 16%, to $6.02 billion.
Analysts polled by Thomson Reuters expected earnings of 38 cents on revenue of $5.92 billion.
At the U.S. lending portfolio segment, earnings slumped 55%, as the write-off rate on a managed basis, which assumes there have been no off-balance sheet securitization transactions, rose to 8.9% from 5.9% a year earlier, but fell from the second quarter's 10%.
-By Aparajita Saha-Bubna and John Kell, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com