American Express Financial Services

Improved Credit Data Welcomed by Financials

The banking industry gave investors good news this week, updating the Fed with improving credit card late payment and default data. Falling late payments suggest banks will continue to benefit from declining charge-off headwinds over the coming two quarters, bullish for earnings and stock prices at companies including American Express ( AXP ), Discover Financial Services ( DFS ) and JP Morgan ( JPM ).

American Express posted the best late payment ratio in May. The measure fell to 1.6% from 1.7% in April. At JP Morgan, the rate fell to 2.66%. Over at Discover, the 2.88% rate was the company's lowest in 4 years. Even the more troubled Bank of America ( BAC ) saw its late payment rate fall to 4.28% from 4.52%.

During the recession, the late payment rate peaked at 6.61% before falling to 3.89% at the end of Q1. As this rate has dropped, issuers have been able to recapture loan loss reserves thanks to fewer defaults.

Of the six big credit card issuers, Discover trailed only Amex for the fewest charge-offs in May, writing off at a 4.82% annualized rate - much better than the 6.96% industry rate in Q1. And, Bank of America's default rate - the highest of the big six issuers- fell to 8.03%, which as high as it seems, puts it about in line with 2007.

Falling defaults, in part, are thanks to Issuers having cleaned up a lot of risk during 2009 and 2010. Overall, the industry wrote off $75 billion worth of bad credit card debt. And, consumers have done their part to make their balance sheets healthier too.

Household debt service payments as a percentage of disposable personal income has declined from nearly 14% entering recession to 11.75% exiting last year. And, total consumer credit outstanding has increased for 7 consecutive months. Despite this, total revolving credit outstanding has fallen from nearly a trillion dollars entering recession to $790 billion through April. Consumers remain cautious with their spending, but also remain willing to borrow - an early cycle dynamic good for issuer earnings and far less frothy than 2007 and 2008.

To meet the demand of non-struggling consumers, the industry is easing standards. The percentage of domestic respondents tightening consumer loans and credit card standards is down -20.5% so far in Q2, after falling -10% in both Q1 and Q4, 2010. This is down from a peak above 60% at the height of the recession. Issuers have unlocked access to credit, yet are approaching consumers more intelligently. In short, issuers are willing to lend to those lower risk consumers willing to spend.

Kerrie Peraino – American Express | Diversity Journal

The work is never complete. Challenges change and evolve over time and may even reoccur in different markets within your Company. The competition for top talent is extremely fierce, and our ability to create a culture that is of diverse minds and backgrounds, and keep those top performers will continue to be a challenge.

What programs/initiatives work best for American Express that other companies can benchmark? There are four key elements to which we attribute the success of the diversity initiatives at American Express: engagement from the top and an executive team willing to lead by example; clear, measureable goals that align with business objectives to imbed the program in all aspects of the company; a program that is compelling to all employees; and aggressive efforts to communicate that program throughout the organization. One of the initiatives that we have undertaken that has been especially successful, and can be helpful for other organizations, is “Women in the Pipeline and at The Top.” To capitalize on the depth of female talent at American Express and to position our women to reach the top levels within the organization, our Global Diversity & Inclusion team launched the program to create an atmosphere of opportunity for women by creating a more gender-intelligent organization.  As a result of this initiative, our overall talent management process has evolved to identify high potential/high performing female talent and established proactive pathways to advancement.

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