American Express Co. announced an increase in its provisions for credit losses in the latest quarter. Despite this, executives at the company remain optimistic about the health of credit trends.
During the June quarter, American Express reported a net reserve build of $327 million. This, along with higher net write-offs compared to the previous year, led to consolidated provisions for credit losses totaling $1.2 billion for the period. Chief Financial Officer Jeff Campbell, however, expressed confidence in the company’s credit positioning.
According to Campbell, American Express has not observed any signs of credit stress among its customer base, thanks to its premium position in the market. He stated that the high credit quality of their customers is evident in their best-in-class credit performance. Delinquency and write-off rates remain below pre-pandemic levels, a trend that Campbell expects to continue.
While the company anticipates an increase in delinquency and write-off rates over time, Campbell believes they will still remain below pre-pandemic levels even in 2023.
In addition, Campbell mentioned that delinquency rates in the second quarter remained flat compared to the previous quarter.
The Optimistic Outlook for Amex Amidst Economic Uncertainty
When Amex did its credit calculations, it took into account a slightly worse economic outlook for the quarter compared to the previous one. However, recent days have shown a more optimistic trend, according to Campbell, a company representative.
Positive Signals for Amex’s Business
One of the reasons behind Amex executives’ confidence in their business is the company’s growing exposure to highly premium consumers. Amex’s loans and receivables from individuals with FICO scores below 660 have decreased from 10% to 8% since the pandemic, as highlighted in an investor presentation.
Credit Metrics and Future Outlook
Campbell stated that they are pleased with their product choices, acquisition decisions, and risk management strategies. As a result, they believe their credit metrics for this year will be lower than those of 2019. Barring any significant changes in the economy, they are optimistic about what this means for 2024.
Analyzing the Market Reaction
On Friday, the shares of Amex experienced a decline of 5.2%. Analysts attribute this decline more to a slowdown in spending growth rather than concerns related to credit. Nevertheless, this decline marked the largest single-day percentage drop since June 16, 2022, when the company experienced a loss of 5.9%, as reported by Dow Jones Market Data.
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