American Express (NYSE: AXP) Sees Q3 Profit Slip 22 Percent

American Express (NYSE: AXP) announced Thursday night that third quarter profit dipped 22 percent to $632 million as cardholder spending fell 11 percent overall to $156.6 billion.  However, Amex suggested that overall card billings have stabilized and spending trends have become encouraging.   

Excluding a one-time benefit totaling $180 million related to an accounting change, American Express earned 43 cents a share, which topped analyst estimates for 38 cents a share, according to a Thomson Reuters survey.

Consolidated revenues totaled $6.0 billion for the quarter, a 16 percent drop from the $7.2 billion recorded a year ago.

“At the start of the year the economy appeared to be in a freefall, the drop in cardmember spending was accelerating and loan loss rates were rising rapidly. Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging and there are signs that the recession may be approaching an end,” said Kenneth I. Chenault, chairman and CEO, in a press release.

American Express said it expects about 8.9 percent of card balances won’t be paid, a decrease from 10 percent in the second quarter of this year.  The company also set aside $1.18 billion in the third quarter to cover bad loans, marking a 13 percent drop from the $1.36 billion taken last year.

Concurrent with the effects of a recession, the company saw its total managed loans fall 20 percent to $60.7 billion in the third quarter compared to a year earlier.

American Express was able to offset a dip in revenue from its smaller loan base by cutting expenses by 17 percent to $3.9 billion, from $4.7 billion last year.

The company’s liquidity position was solid ending the third quarter with a tier 1 risk-based capital ratio of 9.7 percent, well above the regulatory benchmark of 4 percent.

“Our three priorities remain: staying liquid, staying profitable and investing selectively for growth,” said Chenault.