American Express is experiencing mounting credit losses but still expects full-year profit to increase 4 percent to 6 percent, Chief Executive Kenneth Chenault said Wednesday.
The forecast soothed investors as the slowing U.S. economy and tighter credit conditions cause loan losses to mount at financial services companies, leading many analysts to cut their profit forecasts for the industry.
Shares of American Express rose 4.2 percent to $46.17 in morning trading on the New York Stock Exchange. The company is part of the Dow Jones industrial average Speaking at a Keefe, Bruyette & Woods Inc conference, Chenault said U.S. consumer credit behavior has turned "somewhat softer" since the first quarter, and that American Express' write-offs will rise from that period. Credit losses will remain "above average" in the short-term, he added.
Chenault nevertheless said the credit card and travel services company still expects 2008 profit from continuing operations of $3.51 to $3.61 per share, up from $3.39 a year earlier.
Analysts on average expected $3.32 per share, according to Reuters Estimates.
"Our biggest watch-out, as you would expect, is credit in the U.S.," Chenault said. "What we feel is that we can achieve the 4 to 6 percent growth.... If the environment worsens, that becomes more challenging."
American Express shares through Tuesday fell 14.8 percent this year on concern the slowing economy would make it harder for borrowers to pay their debts. The shares were 32.8 percent below their 52-week high of $65.89 set last July 19, Reuters data show.
In the first quarter, New York-based American Express reported a 6 percent decline in profit to $991 million, or 85 cents per share, but operating results topped analyst forecasts.
American Express said it set aside $1.27 billion in the quarter for credit losses and related matters, up 48 percent from a year earlier.
Its U.S. card services business set aside $881 million, up 52 percent, in part because of higher write-offs and delinquency rates, as well as rising business volumes.
The company said it targets 12 percent to 15 percent annual growth in profit per share over the longer-term.