01—Abstract
Summary
Summary of the 10-Q filed October 30, 2009. Cited figures are marked; the original filing is the authoritative source.
American Express Company (AXP) reported a decrease in net income for the third quarter of 2009 compared to the same period in 2008, driven by lower revenues and increased provisions for losses.
Total revenues net of interest expense declined by 16% to $6.0 billiona, primarily due to a decrease in discount revenue, travel commissions, and securitization income. Provisions for losses, while down overall year-over-year, saw an increase in cardmember lending provisions, reflecting a higher reserve level despite a lower average loan balance. Despite a challenging economic environment, the company demonstrated resilience with improved credit trends and a moderation in charge card losses.
Expenses were significantly reduced due to ongoing reengineering initiatives, including a notable reduction in marketing, salaries, and other operating costs. The company also successfully managed its capital and liquidity, with a strong cash position and continued access to funding markets. While the company faces ongoing regulatory and economic uncertainties, management expressed confidence in its long-term positioning for revenue and earnings growth.
02—Key points
Key Highlights
- Net income decreased by 21% to $640 million ($0.53 diluted EPS) for Q3 2009 compared to $815 million ($0.70 diluted EPS) in Q3 2008, reflecting the impact of the challenging economic environment.
- Total revenues net of interest expense decreased by 16% to $6.0 billion, driven by lower discount revenue and reduced securitization income.
- Provisions for losses decreased by 13% to $1.2 billion, though cardmember lending provisions increased due to higher reserve levels.
- Consolidated expenses decreased significantly by 17% to $3.9 billion, largely due to reengineering initiatives reducing marketing, salaries, and other operating costs.
- The company repurchased its preferred shares and warrants issued under the U.S. Treasury Capital Purchase Program (CPP) in Q2 and Q3 2009, respectively.
- Card billed business decreased by 11% globally, indicating a slowdown in consumer and business spending.
- The company maintained a strong liquidity position with $28.2 billion in cash and readily-marketable securities and healthy capital ratios, exceeding regulatory requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2009filed October 30, 2009Financial Statements
Q3 FY2009 against Q3 FY2008
| Line item | Q3 FY2009Q3 FY2008 | Change |
|---|---|---|
| Operating Income | $918.00M$1.08B | −14.8% |
| Interest Expense | $543.00M$884.00M | −38.6% |
| Net Income | $640.00M$815.00M | −21.5% |
| EPS (Basic) | $0.54$0.70 | −22.9% |
| EPS (Diluted) | $0.53$0.70 | −24.3% |
| Shares Outstanding (Basic) | 1.18B1.15B | +2.1% |
| Shares Outstanding (Diluted) | 1.18B1.16B | +2.0% |
05—Questions
Frequently Asked Questions
How did American Express's financial performance in Q3 2009 compare to Q3 2008?
In Q3 2009, American Express's net income decreased by 21% to $640 million ($0.53 diluted EPS) from $815 million ($0.70 diluted EPS) in Q3 2008. This decline was primarily driven by lower revenues and higher provisions for losses, despite significant reductions in operating expenses due to reengineering initiatives.
What factors contributed to the decrease in revenues?
Total revenues net of interest expense decreased by 16% to $6.0 billion. Key drivers included a 12% decline in discount revenue due to lower billed business, reduced securitization income, and lower travel commissions and fees, reflecting the ongoing impact of the economic downturn on consumer and business spending.
How has the company managed its expenses in the current economic climate?
American Express significantly reduced its consolidated expenses by 17% to $3.9 billion in Q3 2009. This was largely attributable to ongoing reengineering initiatives aimed at streamlining operations, which led to decreased spending in marketing, promotion, rewards, salaries, and employee benefits.
What is the outlook for credit quality and loss provisions?
The company reported improved credit trends, with moderated charge card losses and better past-due trends globally. While cardmember lending provisions increased due to higher reserve levels, the company anticipates sequential improvement in loan loss provisions in Q4 2009. Managed lending write-off rates in the U.S. for Q4 were expected to be lower than Q3.
06—Continue