NEW YORK (
) -- Wall Street is expecting strong earnings from two large credit card issuers,
, which are set to report fourth-quarter results after the bell, despite consumers continuing to be challenged by a weak economy and high credit costs.
Analysts on average are expecting American Express to post earnings of 57 cents a share on revenue of $6.14 billion, more than doubling its earnings of 21 cents a share in the year-earlier period, according to
. Capital One is expected to report a profit of 45 cents a share on revenue of $4.3 billion, up from the loss of $3.74 a share it had in the fourth quarter of last year.
Looking at each company's monthly reports on loan delinquencies and charge-offs, credit quality is exhibiting some positive trends, and in some respects can be said to have improved at the two large credit card firms. It will be interesting to see what each company says on the subject, particularly as some of the large banks including
Bank of America
have acknowledged an improvement in consumer-related losses (though these are mostly related to residential mortgage losses as opposed to credit card loans).
American Express provides monthly figures on write-offs for its card member credit card loans on an "owned" basis, which are those loans to customers it keeps on its balance sheet, and on a "managed" basis, which includes securitized loans. Both figures showed improvement over the past three months, according to a Jan. 15 filing with the
Securities and Exchange Commission
For the month of December, loans written off on an owned basis totaled 7.4%, down from 8.1% in November and 8.6% in October, according to preliminary figures. The net write-off rate for the fourth quarter for these loans is expected to be at 8.0% for, American Express said in the filing.
Analysts suggest that credit losses have now likely peaked at American Express as the company was aggressive early on to stop the bleeding. American Express, which has had a rough go of it as a result of the credit crisis, should also benefit from an increase in "billed business" as the economy stabilizes and consumers begin spending again.
Michael Taiano, an analyst at Sandler O'Neill & Partners, expects American Express to report fourth-quarter earnings on the high end of 60 cents a share.
"We believe the quarter will be buoyed by improvement in three key operating metrics relative to 3Q09 and 4Q08: credit losses/loss provision, net interest margin, and billed business volume," Taiano wrote in a Jan. 14 note. "The positive trends should be partially offset by a sharp increase in marketing spend and flattish U.S. card receivables."
David Long, an analyst at William Blair & Co., has an outperform rating on shares of American Express, saying the stock "represents an opportunity to own a high-quality global franchise at an attractive price."
Long also noted that American Express is more of a payment processor, much like
, rather than a credit card lender and as a result is also "poised to benefit from the positive secular trend of growth in card-based transactions," he wrote in a note following the Jan. 15 release of American Express' December figures.
For the month of December, Capital One had an annualized net charge-off rate of 10.14% in its domestic credit card operations, up from 9.60% in the month of November, according to a Jan. 15 SEC filing. However, credit card loans that were delinquent at least 30 days fell to 5.78% from 5.87% in the same time period, the filing said.
Capital One also provides monthly credit card metrics for its auto and international card segments, which showed varying trends. International cards had a charge off rate of 9.58% vs. 9.5% and a delinquency rate of 6.55% vs. 6.60% in November.
Auto loans seemed to be getting worse. Net charge-offs totaled 5.68% for the month of December compared to 3.67% in November, but loan delinquencies rose to 10.03% from 9.57%.
Jefferies analyst Richard Shane said Capital One's credit losses on the whole are likely to rise through the end of March but, in a sort of mixed blessing, he believes they will peak at that time as well.
Still Brad Ball, an analyst at Ladenburg Thalmann, downgraded Capital One on Wednesday to a neutral rating, citing his expectation for higher losses in the first quarter and the potential effects of the Obama Administration's CARD Act will have on margin levels for Capital One.
American Express was one of the top stock performers in 2009. Shares are up an additional 6.5% so far this year, based on Wednesday's closing price. However, the stock was falling on Thursday afternoon by 2.5% to $41.91 amid the broad market selloff.
Capital One shares have risen 12% so far in the new year, based on Wednesday's closing price. The stock was down about 2% in recent action to $42.11.
--Written by Laurie Kulikowski in New York.