The Exchange

AmEx, Economy Face Critical Juncture

The Exchange

By Marek Fuchs

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American Express (AXP), hosting its semiannual financial community meeting on Wednesday at 2:30 p.m., will offer a lens into recent business, consumer and economic trends, and its own vitality. But too few will listen.

It comes on the heels of a negative advanced report for fourth quarter productivity. Often revisions to GDP are significant, but even at the outer edge of historic revisions, it is hard to envision it (an 0.1% drop by the first estimate), as anything but disappointing even in its final form. This is especially true compared to the 3rd quarter, which saw in its final reading a 3.1% rate of growth.

Now this question stands as an imperative: Did the economy merely fly into a bit of bumpy air in the fourth quarter, or is it headed back into a prolonged patch of nasty weather?

Window to the Economy

As a window into the overall and up-to-the-minute performance of the economy, American Express credit usage is a good, if too often misinterpreted one. In the past two years, for example, consumers have indulged in much less delinquency. That adds an undoubted note of stability to the economy.

But in an ominous turn, that might be changing. American Express reported that in the fourth-quarter its credit-card loans were up 4.3% to $56 billion.

The media often portray gathering amounts of credit as a force for good. They say it shows that Americans have regained confidence, instead of framing it, more accurately, as evidence that consumers are losing their minds again. Credit cannot be sustained, and when Americans start larding it on, it seems better evidence that the same delusional collective qualities that brought about the 2008 collapse are, at least in some form, ascendant. Indeed, American Express and competitors, with one eye on those swelling credit card balances and another on the future, have been adding provisions for loan-losses.

Stay tuned for the latest. It may have considerable implications for the economy.

AmEx on the Rocks

American Express, too, has hit a critical juncture. On light volume and to the accompaniment of insider selling, its stock stands at the lip of a 52- week high, even with a questionable restructuring underway.

The sharp reduction of their corporate travel operation (a planned firing of 5,400 was just announced) will redefine the company, once known for high-end travel services. Whether, with traveler’s checks dead as disco and self-service options commonplace, moving away from that means progress or regress is open to discussion. At least at this point, every week counts.

History shows that this semiannual meeting, though not widely showcased, holds clues.

Past is not always prelude, but at its last semiannual meeting in August, American Express made clear that its July business had slowed, putting it behind competitors MasterCard (MA) and Visa (V), both of which appear in comparative better shape today.

Visa should gain the better share of public notice on Wednesday, when it reports what Wall Street is expecting to be $1.78 for its first-quarter, up from $1.49 a year earlier.

Temptation to Tune Out

It's not that traders and the media will intentionally shun American Express. The meeting, however, comes at a busy turn and will not be given the attention it deserves.

From Alcoa’s (AA) decent report to Apple’s (AAPL) fizzle, the AmEx analyst meeting comes smack in the midst of an eventful earnings season.

Additionally, there's always a temptation to ignore a company when it speaks to investors for the second time in a matter of weeks. American Express recently offered a mixed earnings report, and the company spoke in detail to the investing public about its languishing revenue, adequate earnings and plans to cut their travel department to ribbons. What’s left to say?

A lot. And that’s why you shouldn’t ignore this call.


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