American Express sets aside more cash for bad loans as profit shrinks

American Express has set aside more money to cover souring loans, a move that weighed on first-quarter profit, as inflation and higher interest rates weigh on consumers.

Provisions for loan losses totalled $1.1 billion (€1 billion) in the period, New York-based Amex said in a statement. That was more than the $890 million average estimate of analysts and marked a reversal from a year earlier when the bottom line was helped by a release of reserves.

“Our customers have been resilient thus far in the face of slower macroeconomic growth, elevated inflation and higher interest rates,” chief executive Steve Squeri said in the statement. “That said, we’re mindful of the mixed signals in the external environment.”

Rivals JPMorgan and Citigroup are also grappling with a surge in write-offs. That follows years of record-low losses on card loans, when consumers were aided by trillions of dollars in stimulus that the US government pumped into the economy.

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The provisions overshadowed an unexpected acceleration in customer spending on Amex’s cards. Purchase volume jumped 14 per cent to $398.9 billion in the first quarter, fuelled by the popularity of the Platinum Card and other premium products. That topped the 13 per cent increase that Wall Street expected.

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Amex spent years revamping the benefits on its popular $695 a year Platinum Card, fuelling a jump in net card fees and purchases. The payments giant has also continued to benefit from a resurgence in consumer spending on travel and dining in the wake of the pandemic.

Discount revenue – a measure of the fees Amex collects from merchants each time a consumer uses a card – totalled $7.95 billion, and net card fees were $1.7 billion. That boosted net revenue by 22 per cent to $14.3 billion, beating estimates.

First-quarter profit dropped 13 per cent to $1.82 billion, or $2.40 a share, missing the $2.68 that analysts predicted. Operating expenses surged 22 per cent to $11.1 billion, which includes customer rewards and a $95 million loss on Amex Ventures investments.

Amex said it still expects revenue to grow 15 per cent to 17 per cent this year and that earnings per share will be $11 to $11.40, reiterating an earlier forecast. – Bloomberg