Three months ago, Stephen Squeri, president and CEO of American Express, declared a worldwide “economic free fall” due to the coronavirus. Its second-quarter earnings show just how far the decline has been.
The card brand reported Friday that its second-quarter net income was $ 257 million, a drop of 85% compared to $ 1.8 billion a year ago.
Travel-related expense was a major expense category for Amex, accounting for 30% of its owning volume in 2019. At the end of its first quarter of 2020, Amex saw a 95% drop in your travel and entertainment business. There are signs of recovery, but they are slow; Jeffrey Campbell, chief financial officer at Amex, said Jeffrey Campbell, chief financial officer at Amex, continued to drop 75% in the segment.
However, spending by Amex cardholders outside of travel and entertainment has increased, Campbell said.
“Our non-T&E turnover has increased 5%; this difference is particularly evident in our commercial business, as our spending by small and medium-sized business clients has remained much better during this period than our larger corporate clients,” he added. “Most of our spending for our small business customers is B2B spending, while the spending for our large global corporate customers is historically T&E.”
Amex products generally cater to high-end luxury spending.
“In the past few months, it has been difficult to take those trips or go shopping for luxury items,” said Squeri. “We are seeing more spending on groceries and online, and we are also seeing a lot of spending in areas of home improvement.”
Although corporate spending is down 50%, mainly due to travel, the B2B segment remains strong, Squeri said.
“We have not seen our consumers really split much of their spending right now, and from my point of view, this is not necessarily a bad thing,” added Squeri. “It gives us more opportunities in the future, and now we are more than defending ourselves from a credit and profitability point of view, and from a card value perspective.”
Squeri said he remains optimistic, mainly because of Amex’s record. “Our consumers like to consume and they will find other ways to spend and they will find more ways to get luxury items and things like that.”
Amex announced on Friday that it has renewed its co-branding relationship with British Airways until 2028, an agreement that continues to be extended with Marriott hotels at the beginning of the quarter.
“In the long term, these companies have been great co-branding partners,” said Squeri. “These are cards that work well because they are two great brands that work together with a value proposition.”
Amex considers the long-term value of such relationships, rather than rushing to make decisions due to the current crisis, Squeri added. “It helps our partners and shareholders,” he said.
Consumer Loan Default Concerns They are likely to be an issue for most card brands during second quarter earnings, but Amex expressed positivity on how it was managing credit risk.
Given that the United States economy remains uncertain due to a pandemic that has not subsided, Amex expects that clearing license you received from the People’s Bank of China Last month translates into a profitable market expansion for the card brand by the end of the year.
However, recent political disputes were evident in the United States and China expelling its consulates.
Total consolidated second quarter income, net of interest expense for Amex, was $ 7.7 billion, 29% less than the $ 10.8 billion of the previous year. The quarter primarily reflected a decrease in cardholder spending and a lower average discount rate compared to the prior year.
The company’s strategy last year of refreshing old products and contemplating new ones to create more appeal among US merchants and younger consumers remains a major driver for Amex.
While the company continues to consider offering a debit card, it is unlikely to be in a rush to launch one right now, even though a declining economy often attracts more consumer interest in a debit product.
“It is something that we observe continuously,” Squeri said. “The economics of a debit product is a little bit different, and the value you can put on a debit card is different.”
The approach for Amex regarding debit, at this time, is to continue the agreement with PayPal to allow money from the Venmo P2P service to be transferred to American Express and vice versa. The Chinese market may also be a better opportunity to offer a debit product, Squeri explained.
Squeri also noted that Amex has issued up to $ 3 million in grants to support black-owned small businesses and has studied how the company can expand financial inclusion for cardholders as well as embrace diversity within their workplace. .
.
