AmEx to Cut $1 Billion in Costs

“American Express Co. unveiled a plan to cut $1 billion in costs by the end of next year, acknowledging that efforts to propel revenue growth weren’t paying off.”

“The card issuer reported a 38% decline in fourth-quarter earnings, hurt by a strengthening U.S. dollar, pressure on merchant fees and intense competition. Results were clouded by a series of unusual items that affected the current quarter and the year-earlier period.”

Impacts from the “intense competition” cited by AmEx include the end of the company’s exlusive partnership with Costco:

“the New York company’s 16-year exclusive relationship with warehouse-club retailer Costco Wholesale Corp. is set to expire at the end of March. Mr. Chenault previously had said the change, which will affect roughly one in 10 AmEx cards in circulation, would hurt the company’s results.”

It is not immediately clear how AmEx will achieve its cost cutting goal, although the recently announced shuttering of its Serve product unit is surely part of the plan.

In more postive news:

“the company last month reinstated its longtime policy that forbids merchants to steer customers to less expensive forms of payment after the company received a favorable court decision. Merchants, who pay a percentage of each card transaction to card-issuing banks, have long complained that they pay more when customers use an AmEx card than when they use other types of plastic.”

“The company’s U.S. card-service business reported its earnings grew 20% to $799 million. Revenue rose 5% to $4.8 billion, reflecting an increase in card-member spending, an increase in net card fees and higher net interest income from growth in the company’s loan portfolio.”

Overview by Alex Johnson, Senior Analyst, Credit Advisory Service at Mercator Advisory Group

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