Credit cards: Profits soar at American Express

American Express Co. on Thursday said its third-quarter profit jumped 71 percent as its card holders spent more and it wrote off fewer unpaid bills.

For the three months ended Sept. 30, the card company's net income rose to $1.08 billion, or 90 cents per share, from $632 million, or 53 cents per share, in the year-ago quarter.

Revenue jumped 17 percent to $7.03 billion, from $6.02 billion last year.

Analysts polled by Thomson Reuters, on average, expected profit of 86 cents per share, on revenue of $6.8 billion.

Spending on American Express credit cards rose 14 percent in the quarter, the company said. The largest increases came from business cards, where the company made changes to various card programs. Revenue from its U.S. cards rose 23 percent to $3.66 billion. International card revenue edged up 1 percent to $1.17 billion.

While Amex customers are typically more affluent than the overall population, Chairman and CEO Kenneth I. Chenault said in a statement that balances carried from month to month remained below levels seen before the recession "as cardmembers continued to manage their finances carefully and pay down outstanding debt."

That trimmed profit because customers paid less interest on their lower balances, Chenault said, but it helped to improve the company's risk profile. During the quarter, American Express' write-off rate dropped to 5.1 percent of balances, compared with 8.6 percent a year ago. It is the lowest in the industry.

Lower write-downs and delinquencies allowed the company to slash its provision for loan losses, or money set aside to cover loans that it doesn't expect to collect, by 68 percent to $373 million, from $1.18 billion a year ago.

The company said its move to consolidate securitized loans — those sold to investors — in the first quarter also helped boost profit in the period.

During a conference call on the results, Chenault discussed at length the impact on the card and payment industry of regulatory changes enacted in the past 18 months, including sweeping credit card reforms and a provision to limit debit card fees charged to merchants, in the financial regulatory overhaul.

He also reiterated the company's stand on a lawsuit filed by the Justice Department regarding whether merchants may offer customers discounts and incentives for using a particular type of card.

"The lawsuit, after all, is about steering between credit products," Chenault said. "Merchants are already allowed to offer a discount or incentive for customers who pay by cash, check, or debit card, but few do." While it costs merchants a bit more to accept an American Express card than a Visa or MasterCard, he said, "it seems questionable whether merchants would disrupt the transaction at the point-of-sale and risk a potential loss of customer goodwill for the sake of a relatively small differential."

He added the company should have the right to negotiate with merchants on contract terms, and American Express contracts require their cards be accepted without question. "I don't believe that government intervention in this matter or in any legal commercial negotiation will lead to a positive outcome."

Also during the call, Chief Financial Officer Dan Henry said the company plans to repurchase about 15 million shares in the fourth quarter.