AmEx Write-Offs Fall but CEO Stays Wary

American Express Co. said credit trends among its cardholders are showing signs of improvement for the first time in 18 months, even though the most creditworthy customers are still keeping a tight grip on their wallets.

Wednesday's comments by the New York company are the latest sign of tentative optimism from financial firms that early-stage delinquencies in credit cards and mortgages appear to be moderating.

Kenneth Chenault

"While loss rates were better than we expected, they still remain high by historical standards," Kenneth I. Chenault, AmEx's chairman and chief executive, said in a presentation to investors. "The external challenges are not going to go away anytime soon."

AmEx, Capital One Financial Corp. and many other card issuers have been pounded during the recession as job losses make it harder for customers to keep up with their bills.

Some of the largest credit-card companies are operating in the red, and J.P. Morgan Chase & Co. has said it doesn't expect its card unit to turn a profit in 2009 or 2010.

The problems have been particularly tough on AmEx, which was hurt by an ill-timed expansion of its credit-card portfolio. The company strayed from its traditional roots in charge cards, which require customers to pay their bills in full each month.

When times were good, AmEx offered more credit cards to its affluent customers, allowing them to carry a monthly balance. Delinquencies have been especially high among cardholders in U.S. states that were the hardest hit by the collapse in home prices.

AmEx Chief Financial Officer Dan Henry said preliminary data indicate that the company will write off 9.2% of its U.S. credit-card loans in July, down from 10% in the second quarter.

If that trend holds, the company expects third- and fourth-quarter write-offs to dip below 10%, he added.

The positive trends are prompting AmEx to pump more money into investments that were being cut back because of the recession, including marketing, promotions and customer-acquisition programs, Mr. Chenault said.

AmEx executives also noted that recent declines in spending appear to be stabilizing, though the company's most affluent customers remain reluctant. "Customers who have the greatest capacity to spend are pulling back more than other customers," Mr. Henry said.

link.....