American Express Company (AXP)

Write-offs in US card portfolio on owned portfolio is 7.1% in 2Q 08 - Amex is supposed to have consumers with good credit score. They also are not tracking their guidance anymore. This is a serious problem.

The earnings are awful, the business is in the dumps and now AMEX wants to withdraw any 2008 forecast. Bloomberg reported: Profit in the company’s U.S. card business dropped 96 percent to $21 million from $580 million a year earlier as provisions for losses more than doubled to $1.5 billion from $640 million. uncollectible debt in the unit rose to 5.3 percent of loans from 2.9 percent a year earlier.

Bloomberg reported that: American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped more than 25 percent in the past year on concerns rising U.S. unemployment will hurt consumers’ ability to repay debts. The damage at American Express was cushioned by a 30 percent rise in overseas profit to $133 million as customers spent and borrowed more.

The biggest dislocation is still in the future outlook as compared to the stock price for many of the constituents within the banking sector. With all of the downgrades along with the fact that we are seeing a historic rise in defaults, don’t tell me that the worst has been priced already as that is not possible. There has got to be something else as there are reports, predictions and further “shoes” to drop from eco-space.

American Express Co. (AXP) and Capital One Financial Corp. (COF) fell in trading yesterday (Tuesday) after they reported overdue loans and payments increased in January. American Express, the biggest U.S. credit-card company by purchases, said defaults on loans packaged into securities rose to 8.29% from 7%, while payments at least 30 days overdue climbed to 5.28% from 4.86% in December. Capital One said that defaults rose to 7.82% and late payments reached 5.02%, Bloomberg reported.

Consumer credit decreased by a record $17.5 billion during the month of November 2009, 3.5 times higher than the projected $5 billion decrease. This, combined with unemployment that is near a 26 year high, greatly decreases the amount consumers are able to purchase, and thus charge to their credit cards.

The New York Times reports that Visa's Q2 earnings beat estimates, as net income rose to $536 million, a 70% increase over last years Q2 earnings. Since Visa does not make loans or run a network, it has also partially avoided the partial defaults that have hurt American Express. American Express has announced it will cut 4,000 more jobs as part of a plan to cut $800 million in expenses.

As unemployment and credit card delinquencies rise, card issuers are on the hot seat for imposing large late fees and slamming delinquent customers with huge interest rate increases.

Delinquencies are soaring throughout the industry in concert with unemployment, which reached a 25-year high of 8.5% in March. Charge-offs, which are loans that banks have given up on, increased to an average of 8.02% in February from 4.53% a year earlier, Bloomberg reported.

Capital One reported a $111.9 million first-quarter loss on higher reserves for soured loans on Wednesday. Bank of America reported a $1.8 billion first-quarter loss in its credit-card services unit.

Lenders have tried to protect themselves with late fees, tightening credit limits and closing accounts, angering both lawmakers and consumers.

The meeting came a day after a bill to curb credit card fees and limit penalties cleared a key panel in the House of Representatives

The legislation - called the Credit Cardholders’ Bill of Rights - stops credit card issuers from imposing arbitrary interest rate increases and penalties and halts onerous billing practices. A separate version of the bill is under review in the Senate.

Legislators have expressed outrage that many card issuers have received government bailout money under the Treasury’s Troubled Asset Relief Program, essentially paid for by the U.S. taxpayers who use the cards and are saddled with the high fees.

President Obama’s economic adviser, Lawrence Summers, last weekend accused the companies of enticing consumers with aggressive marketing campaigns and deceptive interest-rate terms, encouraging them to become "addicted" to credit.

The White House specifically wants any legislation to limit issuers’ ability to charge fees when customers exceed their credit limits. Obama’s chief of staff, Rahm Emanuel, recently told House Financial Services Chairman Barney Frank that Obama also wants card issuers to offer longer terms for introductory, low teaser rates. The administration also wants card companies to apply excess payments first to balances with the highest interest rates, and to tell customers how long it will take to pay off their balances if they only make minimum payments.

The banks are saying the proposed regulations will make matters worse by raising costs, restricting credit, and ultimately hurting borrowers more.

"If the government keeps changing rules, it may make it harder for consumers to get credit," Ken Clayton senior vice president of card policy at the American Bankers Association in Washington, told Bloomberg.

"It means less credit available to vast numbers of Americans at the very wrong time," he said.

The increase of cards issued by GNS' partner banks will cannibalize their core proprietary card business.

American Express will suffer from declining transactions per card, and hence average discount revenue, as it continues to increase the number of cards issued by partner banks.

Cell phones may take share away from card transactions in the near future, especially in key geographies in Asia and Europe.