American Express reported a 9 percent decline in fourth-quarter profits as it set aside additional funds to cover potentially bad loans.
The company experienced an increase in charge-offs and delinquencies, a concerning sign given that its clientele is typically wealthy and creditworthy. Additionally, American Express (NYSE:AXP) is increasing its focus on the small business sector with the launch of a suite of financial service products for US SMBs.
American Express announces Dividend Increase
The New York-based company also announced a plan to increase its quarterly dividend and forecasted higher-than-anticipated profits for 2023, noting that it earned a profit of $1.57 billion in the quarter, down from $1.72 billion in the same quarter of 2021 and below analysts’ expectations.
The AP reported that AmEx Business Blueprint’s credit line loan rates range from 2% to 9% for a six-month loan and 15.75% to 27% for an 18-month loan. The SMB-centric unit is also designed to enable SMBs to pay their bills and vendors, accept card payments, and obtain loans in a single location.
Despite the fact that AmEx cardmembers spent $413,3 billion on their cards last quarter, the company has observed a significant deterioration in the financial health of its customers and has set aside $1.03 billion to cover potential credit losses, compared to only $53 million in the same period last year.
The company said in a statement off 1,3 percent of its total loans, compared to only 0.8 percent one year prior, and the number of cardholders who were 30 days or more past due increased.
In a statement, AmEx CEO Steve Squeri said that the company’s credit metrics “remained strong” in the quarter and that it is seeing few signs of a short- to medium-term recession, noting that cardmember spending remains strong.
Berkshire Hathaway
Chief financial officer of AmEx Jeff Campbell stated, “The rise in delinquencies was anticipated, and they do not anticipate credit losses to reach levels comparable to those before the pandemic. Other credit card companies have experienced much larger increases in delinquencies, including Discover Financial, whose stock fell sharply this week following the release of its earnings.
Meanwhile, American Express (AXP), one of the leading credit card companies in the world, has also been a longtime favorite of Berkshire Hathaway (BRK-A, BRK-B) CEO Warren Buffett.
On September 29, 2022, Berkshire held 151,610,700 AmEx shares, which represented 20.29 percent of the total. AmEx was Berkshire’s largest securities holding by weight and third-largest holding by market capitalization at the end of 2021, with a stake valued at $24.8 billion; this value increased to $26.1 billion by September 29, 2022.
In 2022, Berkshire accumulated at least a 20.2% stake in Occidental Petroleum (OXY) and received regulatory approval to purchase up to 50% of the oil giant’s common stock. Therefore, despite the fact that AmEx is no longer Berkshire’s largest holding by weight, the company’s value to the company is evident.
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