American Express Company : AmEx CEO : Expense Controls In Place As Benefits Wane
02/08/2012 | 04:35pm
By Andrew R. Johnson
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American Express Co. (AXP), the largest credit-card issuer by spending, is pushing more cards with annual fees as it tries to generate additional revenue and manage expenses.
The New York company has faced concerns over expenses over the last year as it ramps up investments in digital initiatives and more aggressively courts new customers with rewards and other perks. Those concerns have been a particular focus as payments from Visa Inc. (V) and MasterCard Inc. (MA) tied to a past settlement disappear and expectations that loan-loss provisions will rise.
"We've known for some time that we've faced these reductions and we've been planning accordingly," Ken Chenault, chairman and chief executive of American Express, said during a webcast of the company's investor update Wednesday.
American Express issues its own credit cards and processes transactions made with those cards, unlike other card companies that do one or the other. The company, which has typically lent to affluent customers, focuses on attracting cardholders who use their cards frequently, which generates revenue based on fees that merchants pay to accept its cards.
A major focus as of late has been pushing more cards that carry an annual fee. While most of its charge cards and co-branded cards--those that carry the names of airlines, retailers and other partners--have an annual fee, its revolving credit products traditionally have not.
"We're now ramping up this strategy with our proprietary lending product," Chenault said, noting it recently relaunched a revolving credit card product called Blue Cash Preferred that carries a $75 annual fee.
American Express bounced back from the recession more quickly than most card issuers, thanks in part to its affluent customer base and aggressive moves to close bad accounts.
The company's fourth-quarter profit rose 12% from a year earlier, to $1.2 billion. Revenue, net of interest expense, rose 7% to $7.7 billion.
Expenses have been a focal point for investors in card companies as lenders ramp up marketing, rewards programs and other costs to win new customers.
Credit-card lenders sent 4.98 billion direct-mail offers to U.S. consumers in 2011, up from 3.62 billion offers in 2010, according to Mintel Comperemedia.
American Express said costs tied to cardholder rewards rose 10% in the fourth quarter. Overall expenses were up about 1% in the quarter. The company said last month it plans to slow down growth of operating expenses, which include salaries and benefits and occupancy and equipment, this year. Operating expenses were about flat in the fourth quarter.
American Express has also been investing in new technology-based services, including Serve, a payment service that competes with PayPal and allows customers to buy goods on their mobile devices and online through a prepaid account that can be funded with other accounts. Last year it also launched a prepaid card, which functions like a traditional debit card but is not tied to a checking account.
American Express's goal is to broaden its appeal to consumers who may not traditionally qualify for one of its charge or credit cards.
About 20% of the prepaid cards American Express has issued since the launch of the product are to customers who had been turned down for one of its proprietary charge or credit cards, Chenault said.
Additionally, 40% of its prepaid customers and 55% of its Serve customers are under 35.
American Express's shares closed down 0.9% at $51.64.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com
