American Express profit falls as credit losses rise

By Dan Wilchins

NEW YORK (Reuters) - American Express Co (AXP.N: Quote, Profile, Research, Stock Buzz), a credit card issuer and processing network, reported a steeper-than-expected 38 percent drop in quarterly profit as it set aside more money to cover credit losses and its shares fell sharply after hours.

American Express said that even its best clients were spending less and taking longer to pay bills. With customers weaker, particularly in June, the company said it is no longer on track to boost earnings per share by 4 percent to 6 percent this year.

American Express is often seen as catering to relatively wealthy customers, so difficulties among its customers signal the broader economy could be slowing.

"American Express is a bellwether when it comes to the consumer economy, given its size and the amount of spending on its cards," said Richard Moroney, chief investment officer at Horizon Investment Services in Hammond, Indiana.

The weak results also may be a sign American Express relaxed its standards in pursuit of growth, Moroney said.

"It has expanded in recent years beyond higher-end clientele," Moroney said. "Like many financial companies that did this at the end of the credit cycle, it got burned."

The fourth-largest U.S. card issuer's second-quarter earnings fell to $653 million, or 56 cents a share, from $1.057 billion, or 88 cents a share, in the same quarter last year.

Analysts had on average expected 83 cents a share before items, according to Reuters Estimates. Although it was not clear which items analysts had excluded, Reuters Estimates said the actual results were well below expectations.