AXP American Express Company

By AnnaMaria Andriotis and Peter Rudegeair 

American Express Co. is pushing into the booming personal-loan business despite investor worries that an expanding roster of lenders may be getting into the game at too late a stage.

Such fears put AmEx executives on the defensive Wednesday at their annual investor day conference. Chief Executive Ken Chenault acknowledged the company has received questions about the timing of recent efforts to expand lending. These include through credit cards and expanding last year into personal loans -- the first time the iconic card company has engaged in such lending.

But he said that AmEx is "very comfortable" because the initiative involves lending more to its existing card customers.

AmEx's foray into personal loans is happening as the company is under pressure to maintain market share in the card market while also fending off growing competition from a host of lending rivals. Its fourth-quarter earnings were lackluster and the company has had to ramp up marketing and promotion expenses, although the company's stock has outperformed rivals Visa Inc. and Mastercard Inc. over the past year.

Others who also have recently made a move into personal loans include Goldman Sachs Group Inc., which last fall began offering them through its new consumer-focused business, Marcus. British bank Barclays PLC has also joined in and began late last year to offer personal loans by invitation to select U.S. Barclaycard and potential new customers.

Discover Financial Services, too, is ramping up in personal loans. The card issuer originated $4 billion of such loans in 2016, up 31% from the year prior and the highest ever for the company.

In 2016, lenders overall originated some $133 billion of personal loans in the U.S. -- the most in at least 10 years and nearly double the volume in 2010, according to Experian.

So far, business has been good, with an improving U.S. economy keeping defaults and delinquencies low. But some analysts warn that firms entering the market now are taking on more risk, because late payments tend to rise as the economy enters the late stages of a long-running expansion. The U.S. recovery is now entering its ninth year.

"It's probably in the sixth or seventh inning," said Jason Arnold, an analyst at RBC Capital Markets.

Yet many firms fear they will miss out on easy profits if they don't make personal loans, allowing rival lenders and upstarts alike to lure away their best customers. That could punish results at a time when growth has been at a premium.

"You have a choice -- you either better serve the needs of the customers or run the risk that they leave you," said Todd Nelson, business development officer at SunTrust Banks Inc.'s LightStream, an online-lending unit that originates personal loans.

In the wake of the financial crisis, many banks cut back on these loans, due to losses suffered during the meltdown, tightened standards and reduced risk-taking. This left an opening for online lenders such as LendingClub Corp. and Prosper Marketplace Inc.

Online lenders have been using these loans to appeal to mostly creditworthy consumers who want to consolidate high-interest credit-card debt. Around three out of every five loans LendingClub has made since it began lending in 2007, for instance, went toward paying off higher-cost debt, according to data from the San Francisco-based company.

While personal loan rates often range from 6% to 20%, credit-card charges often exceed 20%. The lenders, meanwhile have been borrowing at rates that allowed them to generate healthy returns.

And there are plenty of credit-card customers to target. Total credit-card balances have grown to be just shy of $1 trillion, climbing steadily toward crisis-era levels. The Federal Reserve reported this week that balances in January were $995 billion.

For Goldman, entering the personal-loan market was easy. The Wall Street giant, which has long catered to institutional customers and wealthy individuals, didn't have existing consumer balances that could be put at risk.

Because the firm doesn't have a credit-card portfolio, "the decision didn't involve disintermediating ourselves," said Stephen Scherr, Goldman's chief strategy officer and chief executive of GS Bank USA. "We weren't burdened by any other business or other legacy platform."

The same can't be said for AmEx or other card companies. As a result, AmEx's loan offers are currently only made to existing card customers and come with a catch: Borrowers can't use an AmEx personal loan to refinance an AmEx card balance.

"We are focused on addressing the borrowing needs of our premium, high-credit quality card member base with whom we have a long history," said Kartik Mani, AmEx executive vice president of global consumer lending.

And at AmEx's investor day presentation, Doug Buckminster, president of the company's global consumer-services group, stressed the credit quality of AmEx borrowers. He added that the company's overall consumer-loan portfolio -- which consists mostly of credit-card holders who carry balances -- has significantly lower exposure to borrowers with low FICO scores than it did in 2007.

While consumers took on more credit-card debt last year, AmEx was the only one of the 10 largest card issuers to post a year-over-year decline in U.S. general-purpose card balances, according to The Nilson Report. They fell 6% in 2016 from a year earlier, due largely to the loss of card partnerships with Costco Wholesale Corp. and JetBlue Airways Corp., Nilson Report data show.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

March 09, 2017 13:48 ET (18:48 GMT)

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