NEW YORK (Reuters) - American Express Co, the credit card and travel services company, on Monday said it plans to eliminate 4,000 jobs, or 6 percent of its workforce, as the weakened economy causes higher customer defaults.
The cuts are part of the New York-based company’s plan to save $800 million over the rest of 2009. They are in addition to 7,000 job cuts and an expected $1.8 billion of savings from a restructuring it announced in October.
Like many rivals, American Express has been hurt by rising delinquencies among cardholders, with the U.S. unemployment rate having risen to its highest level since 1983.
On Friday, American Express said its net charge-off rate, or debt it does not expect to be repaid, rose to 10.1 percent in April from 8.8 percent in March.
“We continue to be very cautious about the economic outlook,” Chief Executive Kenneth Chenault said in a statement. He said the cost savings “will be reinvested in the business to make sure we can take competitive advantage of opportunities as the economy begins to rebound.”
American Express expects to take an after-tax charge of $117 million to $163 million in the second quarter, largely for severance and other costs tied to the job cuts. It said the cuts will occur throughout the company, saving $175 million.
The company also plans to cut spending by $500 million on marketing and business development and $125 million on consulting and other services, travel and overhead.
Michael O‘Neill, a company spokesman, said the “vast majority” of the earlier 7,000 job cuts have taken place, and that the latest cuts will take place over several months.
In the first quarter, American Express’s net income fell 56 percent from a year earlier, while the amount set aside for credit losses increased 49 percent, a regulatory filing shows.
American Express was one of 19 banking companies to undergo government “stress tests” of their ability to weather a deep recession.
It was among nine told it did not need more capital. The company has said it would like to pay back the $3.4 billion it took from the government’s Troubled Asset Relief Program.
American Express shares fell 5 cents to $26.08 after-hours, after rising $1.90, or 7.8 percent, in regular trading. The company is part of the Dow Jones industrial average.
Reporting by Jonathan Stempel; Editing by Gary Hill, Phil Berlowitz