AmEx, Capital One See Profits Rise

By Andrew R. Johnson 

American Express Co. and Capital One Financial Corp. said customers' credit-card spending rose during the holiday shopping season, leading to higher fourth-quarter profits for both firms.

As two of the country's largest credit-card issuers, AmEx's and Capital One's results are viewed as a gauge for the health of consumer spending. Recent positive economic data have fueled optimism that consumer spending could pick up this year, providing a boost to the credit-card industry.

AmEx's profit more than doubled to $1.31 billion, or $1.21 a share, up from $637 million, or 56 cents a share, a year earlier, which included a restructuring charge. Revenue, net of interest expense, rose 5%, to $8.55 billion.

Capital One, which has traditionally lent to a broader swath of consumers, said profit rose 2.1%, to $842 million, up from $825 million a year earlier. Per-share earnings, which include the payment of preferred dividends, rose to $1.45 from $1.41. Net revenue decreased 1.4%, to $5.54 billion, driven by a decline in net-interest income.

Both companies' earnings, released after the closing bell, fell short of analyst expectations Thursday, sending their shares slightly down in after-hours trading.

New York-based AmEx, known for targeting affluent customers who use their cards frequently, said billed business, a measure of cardholders' spending, increased 7.9% world-wide, to $254 billion in the quarter, which Chairman and Chief Executive Kenneth Chenault noted came "despite mixed reports during the holiday shopping season."

Capital One, of McLean, Va., said purchase volume on its domestic cards rose about 3% from a year earlier, to $50.4 billion. Excluding the company's portfolio of store credit cards, the figure increased about 8%.

On Tuesday, the Commerce Department said retail sales increased 0.2% in December, or 0.7% excluding auto sales, fueling optimism that economic growth is accelerating. An improving economic picture could give credit-card issuers added momentum this year if consumers begin to spend more.

"Key fundamentals are healthy and we could start seeing some modest improvement in U.S. card loan growth and card spend on the back of better consumer confidence and economic growth," Donald Fandetti, an analyst with Citigroup Inc., wrote in a Jan. 13 research note.

Capital One's net charge-off rate, which measures loans lenders deem uncollectable, for its U.S. credit cards was 3.89%, down from 4.35% a year earlier but up from 3.67% in the third quarter.

AmEx said its net charge-off rate for U.S. card loans was 1.5%, down from 2% a year earlier and 1.7% in the third quarter.

In after-hours trading, AmEx fell 0.5%, to $87.34, while Capital One declined 1.8%, to $75.06.

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