AmEx to slash cost by $1bn by 2017

By Staff Writer

Jan 25, 2016 03:55 AM EST

Credit card issuer American Express Co (AmEx) has decided to reduce costs by $1 billion by December 2017. The stiff competition in the global payments industry is forcing AmEx to cut down on costs. AmEx has incurred losses for the fourth consecutive quarter. The outlook for 2016 discouraged investors. 

American Express has posted disappointing results for the quarter ending December 2015. AmEx suffered losses for four quarters in a row. AmEx has recorded decline in total revenues and net of interest expenses. The company has firmed up plans to reduct costs by $1billion by 2017. 

AmEx's stock fell over four percent to $60.05 after the company's results disappointed investors, as reported by The Economic Times. The net income dropped to $873 million or 80 cents per share for the quarter. The net income was $1.44 billion or $1.39 per share in the previous corresponding period.

The earnings forecast for 2016 also discouraged the investors and analysts. Stephen Biggar, an analyst at Argus Research, said: "While the new guidance for 2016 is above consensus earnings estimates, it includes an expected $1 billion gain on the sale of Costco portfolio, which implies that underlying growth in 2016 will be weaker than expected, not stronger."

Kenneth Chenault, Chief Executive Officer, however, did not specify the expected gain from the Costco portfolio sale during the company's earnings conference call. AmEx lost long-term partners including Fidelity Investments, JetBlue Airways Corp and retailer Costco Wholesale Corp. 

Bill Carcache, an analyst at Nomura Securities, said: "Some investors stripped about $0.66 a share off the expected earnings per share for the year to account for the gain." Analysts predicted an average earning for 2016 at $5.41 per share, according to Thomson Reuters.

Chenault is also working on a plant restructure the company after it suffered 38 percent drop in fourth quarter earnings. American Express has registered a profit of $899 million or 89 cents per share, down from $1.45 billion or $139 a share. The fourth quarter results included $335 million written down, which was part of technology assets and other things. 

The forecast of $1.12 profits per share or $8.34 billion revenues made by Reuters. But the AmEx's forecast of revenues per share at $5.60 for 2017 is below the analysts' prediction of $5.99, as reported by The Wall Street Journal (WSJ). Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, has termed the 2017 outlook as 'disappointing' in a note to clients.

AmEx has taken up cost reduction exercise to tide over the adverse conditions in the wake of rising competition in the global market. The changing regulatory environment in the global payments incudstry is also impacting AmEx. Chenault further said, "Our 2015 results and outlook reflect the reset in co-brand economics, pressures on merchant fees, the evolving regulatory environment and intense competition that have been re-shaping the payments industry."

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