AXP American Express Company

By AnnaMaria Andriotis and Maria Armental 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 19, 2018).

American Express Co. on Thursday recorded its first quarterly loss in over a quarter-century and said it would suspend its share-buyback program in the first half to rebuild capital as it absorbed a hit from tax changes in the U.S.

Quarterly dividends will remain at the current level, the company said.

Kenneth Chenault, AmEx's chief executive, said in a company statement that the upfront charge triggered by the law reduced the company's capital ratios and that the company would be rebuilding capital during the first half of the year. In the fourth quarter, the card company took a charge of about $2.6 billion related to the tax-law changes.

Regulators and investors watch capital ratios closely as a sign of a financial company's overall health and durability. The company's common equity Tier 1 ratio fell to 9.0% in 2017 from 12.3% in 2016. Despite the drop, AmEx's capital ratios are well above regulatory minimums.

In all, American Express had a fourth-quarter loss of $1.22 billion, or $1.41 a share, compared with a year-earlier profit of $800 million, or 88 cents a share. Excluding the charge, the company reported a profit of $1.58 a share. It was the first quarterly loss since 1992.

Analysts surveyed by Thomson Reuters had projected an adjusted per-share profit of $1.54 on $8.71 billion in revenue.

Revenue, net of interest expense, rose 10% to $8.84 billion. The increase was largely due to a rise in card member spending and loans. AmEx has been promoting lending to its card member base over the past couple of years in an effort to boost revenues following the loss of card partnerships, including that with Costco Wholesale Corp. AmEx executives have said they are courting more creditworthy consumers who tend to carry balances on their credit cards rather than pay their bills in full each month.

While that strategy has helped the company bounce back from the loss of the Costco portfolio, it has raised concerns with some investors about whether rising losses could be on the way for AmEx.

Provisions for loan losses totaled $833 million in the fourth quarter, up 33% from a year prior, which the company said is in part due to the increase in the loan balances that it has been writing off as a loss. Its world-wide net write-offs for principal on its loans totaled 1.8% in the fourth quarter, up from 1.6% a year prior. Despite the increase, its write-offs remain among the lowest in the U.S. card industry.

Jeffrey Campbell, AmEx's finance chief, said on the earnings call that the company expects to continue increasing its lending at a rate that exceeds the industry. He said the card company also expects that write-offs and delinquencies will continue to rise, but remain below the industry average.

AmEx's total expenses were down 1% in the fourth quarter from a year prior largely due to a 28% decline in spending on marketing. The card company has faced rising competition from other issuers that rolled out rewards cards geared at high spenders.

Card-member rewards expenses, including the points that AmEx pays when cardholders redeem for hotels, airfare and other rewards, increased 12% to $1.98 billion in the fourth quarter from a year prior. Expenses associated with card member services, which includes some of the costs associated with airport lounges, increased 39% to $406 million.

For 2018, American Express expects to make $6.90 to $7.30 a share, compared with analysts' average projection of $7.04 a share.

Shares, which set a record of $102.39 this week, fell 1.9% to $97.93 in after-hours trading.

Despite the near-term tax hit, Mr. Campbell said the new tax law will benefit the company in several ways, including substantially lowering its tax rate going forward. "Given the lower tax rate, we expect that over time we will more than make up for any reductions in the buyback in 2018 and generate more earnings and return more capital than we would have without tax reform," he said.

He said the tax law also helped result in the company making "an incremental contribution...of a little more than $100 million" to its employee profit sharing program, which in most cases goes directly to employees' retirement accounts. He said the company now plans to invest up to $200 million more in customer-facing growth initiatives in 2018 than had originally been planned.

Thursday's earnings release also marks the last full quarter for Mr. Chenault as chief executive of the company. Stephen Squeri, vice chairman at AmEx, will take over as CEO and chairman in February.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

January 19, 2018 02:47 ET (07:47 GMT)

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