Rapid-Growth Pangs Hit AmEx
American Express (AXP) placed a lot of blame on the weakening economy when it posted its big earnings miss Monday evening. But one factor that also bears mentioning is the credit card company's rapid growth in consumer lending over the past few years.
Shares of American Express fell 7% Tuesday, as Wall Street worried that high gas prices and falling housing prices are causing high-end consumers to cut spending or miss payments on their credit cards.
"Fallout from a weaker U.S. economy accelerated during June with consumer confidence dropping, unemployment rates moving sharply higher and home prices declining at the fastest rate in decades," said Kenneth Chenault, the credit card company's chairman and chief executive. "Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations."
In turn, American Express added $600 million to its U.S. lending credit reserves; this caused American Express' earnings to fall 37% from a year ago to $655 million, worse than analysts had expected.Chenault told investors the fallout was evident across all of the company's consumer segments, even the "longer-term super prime" card members. Plummeting housing prices and record gas prices were among the factors American Express blamed for its weak results. Missing from the earnings call, however, was discussion about how American Express' rapid lending growth over the past few years is now coming back to haunt its business.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV