This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

American Express Settlement Is Small Bump in Road

NEW YORK (TheStreet) -- American Express (AXP - Get Report) late on Tuesday announced a settlement with regulators over its cross-selling of add-on credit protection products to customers, but what should really concern investors is whether or not 2014 can be another banner year for the stock.

American Express on Tuesday announced a series of settlements of "previously disclosed regulatory reviews of marketing and billing practices" with the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.  The settlements included $16.2 million in fines, along with "at least $59.5 million in customer remediation," most of which has already been paid.  The company also said most of the costs associated with the settlements had been booked during previous quarters.

The settlements resulted from regulatory investigations of the cross-selling of credit protection products, which resulted in significant fines to competitors of American Express during, including Capital One (COF), JPMorgan Chase (JPM), Bank of America (BAC) and Discover Financial Services, (BAC) during 2012.

American Express had agreed in October 2012 to civil fines totaling $27.5 million to settle investigations of "certain aspects" of its U.S. consumer card practices, and set up an $85 million restricted fund for customer refunds. 

The company on Tuesday said the marketing of its identity theft, "Account Protector" and "Lost Wallet Protector" products had been "discontinued more than a year ago."

So Tuesday's announcement is good news for the regulators and consumer advocates who rightly pilloried credit card companies' foisting of expensive and arguably unneeded credit protection "services" to their customers.

For investors, the cost of the settlements means nothing, and the timing of the settlements means there's one less negative headline for American Express next year.

"Overall, we would view the settlement as a positive step as it helps clear the issues around the marketing of add-on products that AXP has
discontinued for over a year," wrote KBW analyst Sanjay Sakhrani in a note to clients late Tuesday.

Sakhrani continues to rate American Express "outperform," even though the stock has returned 56% this year through Tuesday's close at $88.69.  That is quite a performance, even in the midst of a bull market that has seen the S&P 500 (^GSPC) rise 29%. 

For the first three quarters of 2013, American Express reported a return on average equity (ROE) of 24.3%, which was down from 26.3% a year earlier, but was still a very respectable number.  Earnings attributable to common shareholders rose 11% to $3.67 a share for the first three quarters of 2013 from $3.31 a year earlier, reflecting a 5% year-over-year increase in revenue, and also a 5% decrease in the average share count.

The company's financial targets, "on average and over time," include EPS growth ranging from 12% to 15% and ROE of 25% or more.

American Express repurchased about $3.153 million worth of common shares during the first three quarters of 2013, and said it expected to complete roughly $800 million in additional repurchases during the fourth quarter.

The shares trade for 16.4 times the consensus 2014 earnings estimate of $5.42 a share, among analysts polled by Thomson Reuters, and for 14.7 times the consensus 2014 EPS estimate of $6.03.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AXP $77.33 0.19%
AAPL $112.12 2.39%
FB $93.24 0.83%
GOOG $643.61 0.70%
TSLA $220.69 -2.66%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs