(Bloomberg) -- American Express Co. set aside more money to cover souring loans, a move that weighed on first-quarter profit, as inflation and higher interest rates weigh on consumers.
Shares of Amex dropped 3.8% to $158.61 at 9:51 a.m. in New York, paring their gain for the year to 7.4%.
Provisions for loan losses totaled $1.1 billion in the period, New York-based Amex said Thursday in a statement. That was more than the $890 million average estimate of analysts surveyed by Bloomberg and marked a reversal from a year earlier, when the bottom line was helped by a release of reserves.
“Our customers have been resilient thus far in the face of slower macroeconomic growth, elevated inflation and higher interest rates,” Chief Executive Officer Steve Squeri said in the statement. “That said, we’re mindful of the mixed signals in the external environment.”
Rivals JPMorgan Chase & Co. and Citigroup Inc. are also grappling with a surge in write-offs. That follows years of record-low losses on card loans, when consumers were aided by trillions of dollars in stimulus that the US government pumped into the economy.
Spending Volume
The provisions overshadowed an unexpected acceleration in customer spending on Amex’s cards. Purchase volume jumped 14% to $398.9 billion in the first quarter, fueled by the popularity of the Platinum Card and other premium products. That topped the 13% increase that Wall Street expected.
Amex spent years revamping the benefits on its popular $695-a-year Platinum Card, fueling a jump in net card fees and purchases. The payments giant has also continued to benefit from a resurgence in consumer spending on travel and dining in the wake of the pandemic.
Discount revenue — a measure of the fees Amex collects from merchants each time a consumer uses a card — totaled $7.95 billion and net card fees were $1.7 billion. That boosted net revenue by 22% to $14.3 billion, beating estimates.
First-quarter profit dropped 13% to $1.82 billion, or $2.40 a share, missing the $2.68 that analysts predicted. Operating expenses surged 22% to $11.1 billion, which includes customer rewards and a $95 million loss on Amex Ventures investments.
Deposits Rise
Amex is also battling for consumer deposits, offering interest of 3.75% on its savings accounts. Retail deposits jumped by $11 billion in the quarter, a sign that the firm was among the early beneficiaries following the collapse last month of three regional banks.
“As you think about all the deposit flows across the industry in the last month clearly we have been, thus far, a winner,” Chief Financial Officer Jeff Campbell said in a phone interview.
Amex said it still expects revenue to grow 15% to 17% this year and that earnings per share will be $11 to $11.40, reiterating an earlier forecast.
Still, Campbell said spending growth has slowed in recent months.
“We’re watching that closely and thinking about the economy,” he said. “But, in general, our customers just continued to show a lot of resiliency.”
(Updates with share decline in second paragraph.)
©2023 Bloomberg L.P.
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