American Express profit tumbles 85% as pandemic-related defaults loom

Credit card issuer American Express Co reported an 85% slump in quarterly profit on Friday after it set aside nearly $628 million to prepare for a flood of potential defaults caused by coronavirus-led layoffs.

Shares were down about 1% before the bell, even as the group managed to eke out a small profit rather than report a loss as expected by analysts.

The health crisis has hammered economies worldwide and triggered mass layoffs, which in turn made more people default on their bills, hurting credit card issuers.

AmEx said its consolidated loss provisions stood at $1.6 billion, up from $861 million a year ago, with the increase driven primarily by new reserves created to account for the effects of the pandemic.

JPMorgan Chase & Co and Citigroup, which are among the largest credit card issuers in the world, have created about $18 billion in provisions for potential credit losses.

U.S. consumer spending suffered its sharpest ever drop in April after stay-at-home orders shut down large parts of the economy, but it rebounded in May and June as businesses started to reopen.

Spending by customers using AmEx cards during the quarter dropped 34.2% to $205.1 billion, with overseas markets seeing a 25% fall, while in the United States, it was down 18%.

Net income fell to $257 million, or 29 cents per share, in the second-quarter ended June 30, from $1.76 billion, or $2.07 per share, a year earlier.

Analysts on average expected a loss 11 cents per share, according to IBES estimates from Refinitiv.

Total revenue, excluding interest expense, fell 29.2% to $7.67 billion, a steeper drop than a 24.8% decline forecast by analysts.

Rivals Visa and Mastercard are expected to report their quarterly results next week.