American Express profit drops 56%

American Express continues to struggle: its profits declined 56% for the first quarter of 2009.  The drop, however, was an improvement compared to the last quarter of 2008, which yielded a 79% decline. Percentages are based on performance during the same time a year ago. 

Despite the poor performance for the past two quarters, the company is profitable: net income for the first quarter of 2009 was $437 million and net income for the last quarter of 2008 was $172 million.

Why is American Express still profitable?  Analysts say that its merchants, who pay higher than normal processing fees for transactions, are keeping the company afloat.  This competitive advantage of a closed loop network has proven to be American Express’ saving grace.  Many of the other major credit card companies are posting significant losses due, in part, to a less diverse business model.

As for the near future, American Express is forecasting more poor returns caused by increased write-offs and decreased spending by customers.  Also, the company hopes to pay back the $3.3 billion of TARP money it received from the government.

My thoughts: merchants, now is the perfect opportunity to coalesce and to renegotiate American Express’ exorbitant fees. A merchant boycott or protest similar to the “Boston Fee Party” in the 90s combined with the current decrease in customer spending would create the perfect storm, and therefore cause American Express to better value its customers.  

Comments

[Robert White]

I protest against American Express after I found out about the chargeback on my business checking account. I called American Express merchant department and asking them why there is a chargeback. They said that one of my customer were not happy about the service for hearing aid she bought. The problem is, she the lost the hearing aid after she purchased it. American Express notified us by email and told them we never receive it. I told them if number of days and been response they should send a hard copy in the mail. They are doing in bad business relationship. I told them than I will stop using all American Express transactions and stop using my business credit card. I used around $20 - $30K per month. Now, I am going to Visa card. I told all other business to stop using American Express card and merchant.

[Stanley Livingston]

I too have had a disappointing experience with American Express. Having been a client since 2002, with an over 700 credit score. American Express called to say that my platinum car was near its limit although I have charged nearly 3 times what was currently due. A short time later they sent a letter stating they needed to see my last 2 year of tax returns to keep the account open. The reason stated were they were unsure of my ablility to pay even though I was current.

American Express request to see my tax returns were an affront to my character and they overstated the boundries of our business relationship. They canceled my card immediately until I provided the requested information.

To this date they are still waiting and the card is still canceled.

Respectfully

S.E. Livingston

[JREGolden]

Amex has it coming. With a credit score varying between 780 and 810, having NEVER missed a payment deadline in 17 years as a customer, Amex reduced my credit line on Blue by 30%. My inquiry elicited a response from customer service, "We are concerned about your ability to repay the full previous credit line." I asked if she was aware that just two weeks previous I was solicited by phone to take out another Amex card because of my "great history" with Amex? No comment was forthcoming. I cancelled the Blue, the Optima and the Platinum is next. I will never do business with Amex or Centurion Bank again.

[Carole May]

I'm not sure how widespread this is, but I have noticed more and more merchants no longer take American Express. I recently asked one merchant why and his response was that their fees were too high, so he switched to Mastercard and VISA only.