American Express to cut 7,000 jobs, save $1.8 billion

By Juan Lagorio

NEW YORK (Reuters) - American Express Co said on Thursday it will cut 7,000 jobs, slash expenses and scale back investments to save $1.8 billion next year, in its biggest restructuring since 2001 as it struggles with bad loans and surging funding costs.

The expected cost savings lifted the company's shares 2.3 percent on Thursday morning.

The credit card company was among the first to warn at the beginning of the year that customer spending was slowing and delinquencies were rising and analysts said the coming months will not be any easier.

U.S. consumer spending shrank at a 3.1 percent annualized rate in the third quarter, the first decline since the last quarter of 1991, a government report said on Thursday.

American Express' cutbacks "will help us to manage through one of the most challenging economic environments we've seen in many decades," said Kenneth Chenault, chairman and chief executive, in a statement.

The fourth-largest U.S. credit card lender said the layoffs, which amount to 10 percent of its workforce, will result in a pre-tax charge of $370 million to $440 million in the fourth quarter.

These restructuring charges would be American Express' biggest since 2001, when the September 11 attacks cut into travel spending and forced the company to take $631 million in re-engineering charges over two quarters.

The charge, which is $240 million to $290 million after taxes, is primarily linked to severance and other charges from cutting staff.

"It's certainly a step in the right direction," said James Ellman, portfolio manager at hedge fund Seacliff Capital. "The company realizes that it's going to be impacted by a consumer-led recession."

Cutting jobs, suspending management-level salary increases for 2009 and freezing hiring for open positions are expected to generate $700 million of cost savings. The staffing reductions will take place across business units and markets and will primarily focus on management and other positions that do not work directly with customers.

American Express also expects to save $125 million in expenses for consulting, travel and entertainment and another $1 billion scaling back investment spending on technology, marketing and business development.

On October 20, the credit card network and lender posted lower earnings for the third quarter as it set aside more money to cover growing losses in its credit card business.

GLOOMY 2009

In recent years, American Express expanded faster than rivals such as Discover Financial Services, Capital One Financial Corp, JPMorgan Chase & Co and Citigroup Inc by signing up more middle-class clients.

Now, American Express is paying the price of its expansion. The default rate among its credit card clients in the United States almost doubled in the third quarter of 2008 from a year earlier.