WRAPUP 1-American Express, Capital One beat estimates

* American Express, Capital One beat Q2 estimates

* Credit quality improves but loan demand weak

* Capital One hopes for loan growth by next year

* American Express focuses more on processing transactions

By Maria Aspan

NEW YORK, July 22 (Reuters) - American Express Co (AXP.N) and Capital One Financial Corp (COF.N) beat expectations with their second-quarter profits, helped by improving credit quality, but both are struggling with weak consumer loan demand.

American Express is dealing with weak demand by focusing less on lending and more on processing transactions, while Capital One is hoping that consumer appetite for loans rebounds by next year.

Loan balances should "begin to grow modestly in 2011," but "the timing and pace of any rebound in consumer and commercial demand remains uncertain," Capital One Chief Executive Richard Fairbank told analysts on a conference call on Thursday.

American Express said that consumer spending has rebounded, but "today's card members are borrowing less and paying down more" debt, Chief Executive Kenneth Chenault said in a statement on Thursday.

The lender and credit card network is looking for future revenues by processing the transactions of its wealthiest customers, who pay their bills in full every month.

As unemployment remains high, consumers "that have good jobs are spending, but even those that have good jobs ... are going to be a lot less willing to have debt now," said David Carr, chairman of Oak Value Capital Management Inc, which owns American Express shares and has owned Capital One shares in the past.

"If you are depending on loan growth right now, that's not where I'd like to be," he said.

REGULATORY IMPACT

Both lenders are also facing uncertainty about the impact of two laws affecting the credit and debit card industries.

"Going into the back half of the year there's a little more uncertainty" for both lenders, said Michael Taiano, analyst at Sandler O'Neill. Capital One especially is facing "even more challenges" from the late fee reductions, he said.

A provision in the new regulatory reform law will restrict the fees that banks and transaction processing networks receive from merchants every time a consumer uses a debit card to buy goods or services.

American Express does not issue debit cards or process those transactions. But banks that do issue debit cards -- including Capital One -- could lose some 75 percent of their debit card revenues if they do not find a way to recoup them by charging consumers additional fees for using their debit cards or checking accounts.

The stakes are relatively small for Capital One, executives said on Thursday. "We are assessing the situation but it's not something that has a big impact," Fairbank said.

But a different law will cut more deeply into its profits by late August. As part of last year's credit card law, lenders are preparing for rules that will restrict the penalty fees they can charge customers who are late on their payments.

Capital One relies more heavily on late fees than American Express. It is unlikely to be able to add many more fees to offset its lost late fee revenue, Capital One Chief Financial Officer Gary Perlin said on Thursday.

American Express Chief Financial Officer Dan Henry said during a conference call that the company does not expect the late fee restrictions "to have a material impact" on the company.

BEATING EXPECTATIONS

Both lenders beat analysts' expectations as they set aside less money to cover bad loans. American Express put aside $519 million for loss provisions, less than half of its year-earlier provision. Capital One set aside $723 million to cover loan losses, compared with $1.9 billion in the same quarter last year.

American Express reported second-quarter net income of $1.02 billion, or 84 cents per share, compared to a year-earlier profit of $337 million, or 9 cents per share.

Analysts had expected the company to report a profit of 78 cents per share, according to estimates from Thomson Reuters I/B/E/S. [ID:nN2298006]

Capital One posted a second-quarter profit of $608 million, or $1.33 per share, well above analysts' average forecast for a profit of 88 cents a share, according to Reuters Estimates.

In the same quarter last year, Capital One had a net loss of $277 million, or 66 cents a share. [ID:nN22108419]

(Reporting by Maria Aspan; Editing by Phil Berlowitz)