American Express Tightening Lending Criteria

American Express is still struggling to cover heavy loan losses recently resulting from defaults in its credit card business.  The company’s fourth-quarter profits dropped 9.9%, and as a result, shares for the company plunged with prices falling almost 3% to $46.03.  The company said that write-offs resulting from bad loans were likely to increase as the year progressed.  In addition, American Express has said that it expects to be hampered even further by additional corporate debt obligations coming due on top of those loan losses.  As a result, the company has been forced to steadily tighten lending criteria for new card holders so that they may offset the risk of additional loan defaults in the future.

American Express has also acknowledged that its first-quarter profit is going to be less than what it was last year at the same time.  In addition, the company foresees its per-share earnings for 2008 growing by just 4 to 6%, which is far less than what the company had originally set as its target:  12 to 15%. 

After issuing nearly 8.5 million credit cards last year, the company has started making a few changes in the hopes of stemming the tide a bit.  The company has steadily been tightening its lending criteria on new card holders as well as existing account holders since late 2007. 

American Express CEO Kenneth Chenault reinforced that idea by saying recently that the company was ”implementing targeted line reductions for specific segments of our portfolio representing the greatest risk,” including card members “holding subprime mortgages and small businesses operating in specific industries.”  He went on to say the company was “adjusting credit models to reflect the higher probability of default that exists during a weaker economy, and in geographies that have been most impacted by home price declines.”

People residing in areas hardest hit by the sub-prime mortgage problems, California and Florida, in particular, have felt the squeeze of these rapidly shrinking credit limits on existing accounts.  So, if you’re applying for an Amex card now, you will assuredly have a much harder time than you might have just a few months ago..

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This entry was posted on Wednesday, January 30th, 2008 at 9:52 pm and is filed under Credit Card News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.