AmEx to cut spending by $3 billion to survive virus-hit economy

(Reuters) – Credit card issuer American Express Co (AXP.N) said on Friday it would cut spending by nearly $3 billion in 2020 after its quarterly profit sank 76% as it set aside more money to brace itself against a wave of potential delinquencies.

The coronavirus pandemic has hammered the global economy, leaving people with an uncertain financial future.

Several large U.S. banks have already stowed away billions of dollars to cover future losses as coronavirus-led layoffs and pay cuts would make it difficult for consumers to make loan payments.

“In light of the current environment, we are aggressively reducing costs across the enterprise,” said AmEx Chief Executive Officer Stephen Squeri, adding that the deterioration in the economy accelerated in April and has dramatically impacted customer spending volumes.

The company expects operating expenses to be down about $1 billion year over year during the next three quarters and will “dramatically” reduce its marketing efforts, company executives said on a post-earnings call.

AmEx in March warned of a drop in spending as the travel and entertainment (T&E) industries reel under the impact of global lockdowns.

“T&E, which was roughly 30% of our proprietary volumes in 2019, is down almost 95%”, Chief Financial Officer Jeffrey Campbell said on Friday.

Spending by customers using AmEx cards during the first quarter fell 3% in the United States and 11% in overseas markets, the company said.

Analyst Stephen Biggar of Argus Research said there were concerns around how soon spending could return to pre-coronavirus levels, particularly business travel, which is a good part of the company’s billed business.

Total expenses in the quarter ended March 31 were down 5% at $7.2 billion, due to lower operating expenses. AmEx spent $2.39 billion on card member rewards, down 2% from a year earlier.

Net income fell to $367 million, or 41 cents per share, from $1.55 billion, or $1.80 per share.

Consolidated provisions for losses rose to $2.6 billion from $809 million.

Total revenue, excluding interest expense, fell to $10.3 billion from $10.4 billion.

Shares of the company were marginally up at $82.40 in morning trading. They have fallen nearly 34% so far this year.