Monday, May 18, 2009

American Express Will reduce 4,000 Jobs

May 18 (Bloomberg) -- American Express Co., the largest U.S. credit-card company by purchases, will cut about 6 percent of its workforce as cardholders squeezed by rising unemployment fail to pay debts.

American Express will take a charge of $180 million to $250 million in the second quarter, mostly tied to severance and other costs from eliminating 4,000 positions, the New York-based company said today in a statement. Additional reductions will be made in marketing and travel costs and consulting services.

The cuts, in addition to 7,000 job eliminations announced in October, may save about $2 billion in expenses this year, the company said. American Express has had to set aside more reserves for failed loans as surging U.S. unemployment makes it harder for customers to pay debt. The jobless rate reached 8.9 percent in April, a 25-year high.

“Credit is a big issue and the spending volume on the cards is a concern as well,” said Jason Arnold, an analyst at RBC Capital Markets in San Francisco, who recommends selling American Express shares. “They’re taking the right steps in this environment.”

American Express rose $1.90, or 7.8 percent, to $26.13 at 4 p.m. on the New York Stock Exchange today, trimming its loss for the past year to 46 percent. The stock dropped 13 cents to $26 in extended trading after the announcement.

First-Quarter Results

American Express said last month that first-quarter profit from continuing operations declined 58 percent to $443 million as consumers defaulted on more loans. The card unit posted a $25 million loss in the period, compared with net income of $523 million a year ago. To start the second quarter, American Express said uncollectible loans climbed to 10.1 percent in April from 8.8 percent in March.

“We continue to be very cautious about the economic outlook and are therefore moving forward with additional re- engineering efforts to help further reduce our operating costs,” Chief Executive Officer Kenneth Chenault said today in the statement.

The previous round of job cuts along with a freeze on hiring and management raises and reductions in technology spending was aimed at saving $1.8 billion in 2009. The measures disclosed today are expected to save about $175 million, the company said.

To tap the government’s Troubled Asset Relief Program, American Express and rival Discover Financial Services converted to bank holding companies late last year. American Express received $3.39 billion in federal funds in January.


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