01—Abstract
Summary
Summary of the 10-Q filed August 3, 2009. Cited figures are marked; the original filing is the authoritative source.
In the second quarter of 2009, American Express Company (AXP) reported a significant year-over-year decline in net income, reflecting the challenging economic environment.
Net income attributable to common shareholders was $102 milliona, down from $650 million in the prior year's second quarter, with diluted earnings per share falling to $0.09 from $0.56. This downturn was driven by a substantial decrease in total revenues net of interest expense, which fell 18% to $6.1 billion, impacted by lower discount revenue, travel commissions, and securitization income. The company also incurred $182 million in restructuring charges related to workforce reductions, impacting salaries and employee benefits.
Despite the headwinds, American Express took steps to strengthen its financial position. The company successfully repurchased its preferred shares issued under the U.S. Treasury's Capital Purchase Program and repaid the associated warrant, demonstrating progress in deleveraging.
Furthermore, the company saw improvements in certain credit trends, with lower-than-anticipated net write-offs and improving delinquency trends in its U.S. cardmember lending portfolio. These factors allowed American Express to maintain a cautious but optimistic outlook, with plans to selectively invest in business-building initiatives while managing costs.
02—Key points
Key Highlights
- Net income attributable to common shareholders significantly decreased to $102 million ($0.09 per diluted share) from $650 million ($0.56 per diluted share) in the prior year's second quarter.
- Total revenues net of interest expense declined 18% year-over-year to $6.1 billion, primarily due to lower discount revenue and travel commissions.
- The company recorded $182 million in net restructuring charges, impacting its workforce by approximately 4,000 positions, as part of ongoing cost reduction efforts.
- American Express successfully repurchased its preferred shares from the U.S. Treasury under the Capital Purchase Program and later repurchased the associated warrant.
- Cardmember spending remained under pressure, with a 16% decrease in global billed business year-over-year.
- Despite a challenging credit environment, the company noted that increases in net write-offs were less than initially anticipated, and lending past due trends continued to improve.
- The company launched new deposit-taking programs to diversify its funding sources, increasing retail deposits by $2.1 billion in the quarter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2009filed August 3, 2009Financial Statements
Q2 FY2009 against Q2 FY2008
| Line item | Q2 FY2009Q2 FY2008 | Change |
|---|---|---|
| Operating Income | $418.00M$774.00M | −46.0% |
| Interest Expense | $547.00M$903.00M | −39.4% |
| Net Income | $337.00M$653.00M | −48.4% |
| EPS (Basic) | $0.09$0.56 | −83.9% |
| EPS (Diluted) | $0.09$0.56 | −83.9% |
| Shares Outstanding (Basic) | 1.16B1.15B | +0.7% |
| Shares Outstanding (Diluted) | 1.17B1.16B | +0.2% |
05—Questions
Frequently Asked Questions
What was the impact of the economic downturn on American Express's financial performance in Q2 2009?
The challenging economic environment significantly impacted American Express, leading to an 18% decrease in total revenues net of interest expense to $6.1 billion and a substantial drop in net income attributable to common shareholders to $102 million, or $0.09 per diluted share, compared to $650 million, or $0.56 per diluted share, in the prior year's second quarter. This was driven by lower cardmember spending and reduced revenue across several categories.
What restructuring initiatives did American Express undertake?
American Express incurred $182 million in net restructuring charges during the quarter related to its ongoing reengineering initiatives. These efforts are expected to result in the elimination of approximately 4,000 positions, representing about 6% of the company's global workforce, aimed at reducing operating costs and improving its cost structure for future economic conditions.
What actions did American Express take regarding its government-related investments?
American Express successfully repurchased all of its preferred shares from the U.S. Department of the Treasury under the Capital Purchase Program (CPP) in June 2009. Subsequently, in July 2009, the company also repurchased the warrant originally issued to the Treasury. These actions reduced the company's financial obligations related to the government program.
How did credit quality and loan performance trends appear in this quarter?
While the overall economic environment remained challenging, American Express observed some positive credit trends. The company noted that increases in net write-offs were less than initially anticipated, and delinquency trends in its cardmember lending portfolio continued to improve. These improvements were attributed in part to the company's underwriting, customer management, and collection initiatives.
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