Delinquencies, Spending Cuts Drove 24% Dip In Amex Quarterly Profit
OCTOBER 21, 2008 -- American Express suffered a 24 percent decrease in net income in the third quarter of 2008, as write-offs due to credit card delinquencies increased and cardholders reduced spending, according to the company's quarterly earnings report released late yesterday. Meanwhile, global corporate travel sales increased 4 percent year over year to $5.1 billion for the quarter, which ended Sept. 30. In the previous quarter, which ended June 30, the company processed $6.2 billion in global corporate travel sales.
The U.S. write-off rate in the quarter was 5.9 percent, but 6.1 percent in September. In the third quarter of 2007, the rate was 3.2 percent. "We expect the fourth quarter to be higher then the third quarter and we expect the first quarter of 2009 to be higher than the fourth quarter of 2008," said executive vice president and CFO Daniel Henry.
The biggest losses occurred in the U.S. consumer card services businesses, which experienced a 59 percent year-over-year decrease in net income. Global commercial services, which houses corporate card and payment systems, and American Express Business Travel saw a 1 percent decrease in net income during the quarter compared with the same period in 2007.
Global commercial services charge cards that were 90 days past due saw a small year-over-year increase to 1.8 percent, while those 30 days past due increased by 1.3 percentage points year-over-year to 3.8 percent, companywide.
American Express CEO Kenneth Chenault during yesterday's investor earnings call said, "Based on recent trends, we believe consumer and business sentiment is likely to deteriorate further and we see this translating into weaker economies around the globe well into 2009."
As U.S. consumer business continues to slide, the company is targeting building its lower-credit-risk areas, such as its global commercial services business. "The market turmoil of the past few weeks is clearly going to make conditions even more challenging," Chenault said. "Card member spending in such an environment is likely to be very soft. Loan growth will be restrained and some of that will reflect the steps we're taking to lower credit risks."
In an effort to offset the downturn, Chenault said the company has embarked on cost-reduction and revenue-building initiatives, further details of which will be released throughout the fourth quarter.
"I think there's a strong focus on expenses, and we also believe that there are opportunities to shift more volume from offline to online, and we think there are adjustments that we can make in our expense structure not just to deal with 2009 but in fact to have a business model that allows us to compete in a more effective way on a multi-year basis," Chenault said. "This is not just a situation that we're focused on revenues, and making changes relative to pricing. We also have gone through an extensive exercise as far as our expenses are concerned."
The world's largest credit card issuer increased total cards in force by 9 percent to 92.1 million. Billed U.S. business increased by 4 percent compared with the same period last year to $120.3 billion and outside of the United States it increased 17 percent to $55.2 billion.
source : http://www.btnmag.com ;
For car dealers, tight credit is fueling a 'catastrophe'
"Things are going disastrously," says Ray Ciccolo, owner and CEO of Village Automotive Group in suburban Boston. "Most car dealers were down over 30% last month, and that is a catastrophe."
Many won't survive. Almost 600 of the about 20,000 U.S. new car dealers have shut their doors this year, and an additional 2,000 will close within 18 months, predicts Mark Johnson, president of a Seattle consulting firm that helps auto dealers buy, sell or merge operations.
In September alone, 61 dealers — two a day — closed shop or downsized to used car lots, says the National Automobile Dealers Association (NADA). Wounded by gas prices that killed sales of their most profitable SUVs and trucks, dealers are being hammered as the economy depresses sales of all models.
Even people with good jobs feel poorer and less confident to take on years of payments for a big purchase. Those who still would are finding it harder to get credit — General Motors credit arm GMAC now requires a credit score of 700 or better for a car loan.
Banks' reluctance to lend also is squeezing the dealers, who need regular loans (called "floor planning") to finance inventory.
"This is a very big, complex issue that's all wound up around itself," Johnson says. "We are definitely up to our neck in this."
Not helping: September sales showed that despite easing gas prices, many buyers still want gas-stingy and cheaper small cars — which have small profit margins — or demand huge discounts on trucks, SUVs or luxury cars.
That's if they're shopping at all. A poll done by WPP Lightspeed this month found that only 10% of Americans plan to buy a car in the next three months.
It may be hard not to gloat when a car dealer gets the short end of the deal, but when they go out of business, that can be bad news for consumers. Fewer dealers fighting for your business means you'll end up paying more for cars.
The plight of car dealers is being watched closely by economic analysts because vehicle sales are a key indicator of the economy's health. The auto industry overall supports one in 10 U.S. jobs, according to the Alliance of Automobile Manufacturers. Dealers alone employ more than 1.1 million and generate nearly 20% of retail sales in most states.
Fewer sales by dealers lead to cuts in auto production. Fewer hours or jobs for assembly-line workers. Fewer parts required from supplier companies. Fewer hot dogs sold to shift workers in plants across the nation.
Not to mention more defaults on mortgages — which got the ball rolling on this economic mess in the first place.
source : http://www.usatoday.com
Is it safe to surf credit cards?
While the term credit card surfing is fairly new, it refers to those who move between credit cards on a regular basis in order to make use of new promotions, interest free periods and other benefits. The industry is split as to whether this can affect your long term credit rating but there is no doubt it does not help.
Even if you have the best credit rating available, if you were looking for a new credit card and the company did a credit check they may see the fact you have numerous applications in a short space of time. While this would not necessarily mean that you are a bad risk as such it does indicate that you may not be around forever. At the end of the day the banks are in this to make money and someone who applies for an offer / promotion and then leaves when it is over is unlikely to make the bank rich
Credit card surfing can and has saved a lot of people a lot of money but you do need to be very careful to ensure that you do not do it too often as this can affect you credit rating. Many companies will not bother to see that you have a perfect credit rating but will instead just see a large number of finance applications over a short period of time.
source : http://financialadvice.co.uk
Credit Card Charge-Offs Rise 48% in August
Moody’s Investors Service, the ratings agency, said credit card charge-offs rose 48 percent in August, according to the latest data on $435 billion in credit card loans that back securities that Moody’s rates. Moody’s said Thursday that it expected charge-offs, or loans written off as not being repaid, to continue to rise throughout 2009, eventually surpassing the peak rates seen during past recessions.
The August charge-off rate — which measures the amount of balances written off as uncollectible as an annualized percentage of total loans outstanding — surged 48 percent, to 6.82 percent, compared with 4.61 percent in the same month a year earlier, Moody’s said in a report. It was the 20th consecutive year-over-year increase in the charge-off rate. The charge-off rate was 6.36 percent in July
source : http://www.nytimes.com
Komando's Q & A: Skip security pop-up ads
Answer: These warnings are usually pop-up ads that show up when you surf. If you let them run their "scan," they'll tell you that you're infected with malware. And they'll offer to clean your computer. All you have to pay is $30 or $40. The people who work this way are mostly crooks. The truth is, if you use common sense, you'll be OK. Use a firewall. Keep your antivirus and anti-spyware programs up to date. And delete spam right away. Remember, legitimate security companies do not use online scare tactics.
Q: We've experienced more than 80 power failures in the past year. They are very brief, but I have to reboot. Do power failures hurt my desktop?
A: An occasional power outage shouldn't damage your computer. However, with so many outages, I'd be concerned about power surges, which could damage your computer. You need an uninterruptible power supply, which includes a battery and a surge protector. In a power failure, the computer would run 10 minutes or more on the battery. That would give you enough time to shut down properly during a brief outage. And you might not even notice a quick power failure.
Q: I listen to you from Tanna, Vanuatu, where I'm a Peace Corps volunteer. I live in a remote village in the jungle. There are no stores, no telephones and no electricity. I've taken more than 2,000 photos in the last 16 months, but I have nowhere to put them. Can you help me find a storage solution?
A: There certainly are handheld photo-storage gadgets. Companies like Wolverine, Jobo and Epson make them. They're about the size of an iPod. The hard drives range from about 30 gigabytes to 250GB. Some store your photos but won't display them. Others have large displays. Prices start around $150 for photo-storage gadgets without screens. Those with screens can run upward of $500. You pop a memory card into a slot. Then, you transfer all the photos to the hard drive. This frees up your card for more photos.
Q: I have a question about free credit reports. I'm married. We have all of our accounts in both of our names. I know I can get free credit reports. I get three every year, one from each agency. Can my wife and I request separate credit reports?
A: Yes, your wife can check her reports, too. Both of you are entitled to the same number of free credit reports . You've been checking your reports alone. And you've been assuming that represents both of you. If you've had joint accounts a long time, that may be true. But when watching for identity theft, consider those reports separately. Someone can open a line of credit in your name alone. Having joint accounts doesn't preclude this. The same goes for your wife. So, each of you need to monitor your separate reports.
source :http://www.usatoday.com
Credit card rates at 15 year-high
Consumers are paying the highest average interest rate on their credit cards in 15 years, an analysis shows.
The average rate on a standard credit card is now 19.50 per cent, credit card comparison website www.click4credit.com.au says.
It used Reserve Bank of Australia data to also find the average monthly card balance stands at $3,115, incurring more than $600 in annual interest charges.
A recent poll by the website revealed more than 1.7 million credit card holders make the minimum payment only on their monthly account.
"Credit cards offer an excellent way of managing cash flow and making purchases if used correctly, but with the wrong type of card it can be a very expensive way to borrow if you don't pay your bills in full," www.click4credit.com.au Richard Greenwood said.
"Most people just accept the credit card their bank offers them and don't seek out the card that will work best for them.
source : http://www.businessday.com.au...;
Credit Card Terms Taking Turns For Worse
(CBS) The impact of ultra-tight credit markets is hitting your credit cards, and you might not even realize it. On The Early Show Tuesday, financial contributor Vera Gibbons explained that lenders are tightening terms in numerous ways, and you need to be aware of all of them to avoid possible trouble down the road. Behind the changes is the simple fact that lenders want to protect themselves from bad debt, so they're tightening standards and practices in hopes of avoiding defaults by credit card users. This is the biggest and perhaps most ominous change of all -- and something many consumers won't realize has happened to them until it's too late. Here's what's scary: You don't have to "mess up" in order for a company to lower your credit limit. Big companies such as American Express, Bank of America and others say they can and will change terms at any time, based on market conditions and the economy in general. Any "perceived risk" can also lower your limit. That includes a decline in credit scores or late payments on other bills. How much are credit limits being cut? In some cases, the cuts are big, Some companies are lowering the limit to right above your balance, and as the balance drops (meaning, as you pay off your debt), the credit limit drops, too. That makes it VERY easy to exceed your credit limit. Credit card companies DO have to inform you that they're lowering your credit limit, but who really reads those small-print pamphlets that come in the mail? Consumers may not know their limit has dropped until they go over it and incur a large fee. Even worse than a fee, however, is how this affects your credit score. When a credit limit is lowered, it appears that you're using a much larger percentage of your available credit. That lowers your credit score, making it more difficult to obtain a mortgage, car loan, or even another credit card.
source :http://www.cbsnews.com