Credit Cards a Plastic Profit Machine

AmEx, which has exposure to bad loans, unlike its straight-processing peers, has earned $1.6 billion, down 55% from the comparable period a year earlier. But unlike big banks that were fellow TARP recipients, AmEx has remained profitable in every quarter of the downturn.

Discover, whose fiscal year ends in November, has earned $958 million in the 12 months ending in May, more than double the $461 million in the previous comparable period.

Instead of driving the downturn, processors have simply become a reflection of the economy, and their outlook appears brighter in the near term than banking peers.

Analysts have remained bullish on the credit card companies, believing that card spending is bottoming out, and that delinquencies and credit losses for AmEx and Discover will soon peak. Despite indications that consumer protection laws are on the way, it's unclear how much effect it will have on card processors, if any at all.

Those factors, combined with easy comparisons to this year's slump, there is overwhelming sentiment that the companies will continue to grow in 2010.

"Recent share strength suggest to us that the market may be gaining comfort that the various spending proxies we track indicate that a bottom may be forming for the consumer," Mammone says, "and that there is nothing imminently negative looming on the regulatory front."

-- Written by Lauren Tara LaCapra in New York.

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