Despite record quarterly sales, American Express reported its first-quarter profits were down 13% from a year earlier because the credit card firm had to set aside more than $1 billion for potentially problematic loans.
The apparent rise in loan loss reserves for many banks reflects the ambiguous economic outlook.
The most significant rivals to AmEx in the credit card market have also put aside funds to address potentially problematic loans and have discussed how consumers are increasingly holding more significant amounts and not paying off their cards.
The major credit card company made a profit of $1.82 billion, or $2.40 per share.
The previous year’s figure was $2.1 billion, or $2.73 per share. According to analysts’ predictions, the outcomes fell short of their $2.60 per share expectation.
AmEx would have enjoyed a record-breaking quarter without putting aside funds for loan losses.
The New York company had a 22% increase in income from the previous year, while overall network volumes—the amount of money spent on American Express’ exclusive network—saw a 14% increase. 3.4 million new accounts were also added by the corporation throughout the quarter.
The corporation observed a 39% rise in cardholders’ spending on travel and entertainment, frequently AmEx’s most profitable revenue stream.
However, the firm increased the amount it invested in its rainy fund, as it has been doing for the last several quarters, due to rising inflation and economic indicators indicating a robust employment market but slow economic development.
Approximately 1.2% of AmEx accounts were overdue by more than 30 days, which is an increase from 0.8% of accounts a year ago. AmEx officials have stated again and time again that they are not concerned about customer health and that the rise in credit losses is simply the balance sheet returning to normal after the pandemic’s boost.
“Our customers have been resilient thus far in the face of slower macroeconomic growth, elevated inflation, and higher interest rates, with credit performance remaining best-in-class,” said Steve Squeri, the company’s chairman and CEO, in a statement.
After Silicon Valley Bank and Signature Bank failed last month, AmEx claimed it did not observe any changes in consumer behavior.
However, the bank did see a double-digit increase in deposits into products like its high-yield online savings account, which is probably a reflection of customers looking for yield to store savings as well as the perception of AmEx as a relatively safe place to store money, given that it is thought to be one of the “too big to fail” financial institutions.
AmEx’s overall revenue increased from $11.74 billion in the same time last year to $14.28 billion this year.