If US consumers are worried about the economy, they are not showing it. Even as some of the world’s biggest names in finance and technology announced fresh job cuts, Americans have continued to spend at a brisk pace.
At American Express, shoppers made more than $1.5tn in purchases on their cards last year, a 21 per cent jump from 2021. Overall, full-year revenue net of interest expense at the credit card giant was up a quarter at $52.8bn, a new high. Executives said the good times should continue. Amex is expecting revenue to increase in a range of 15-17 per cent in 2023 and earnings to grow between 11-16 per cent.
Even so, Amex shares, despite a 12 per cent jump on Friday, are flat over the past 12 months. The stock trades at almost 16 times forward earnings — twice that of rival credit card companies like Synchrony Financial and Discover Financial Services. The premium reflects Amex’s focus on more affluent consumers and business travellers.
But the meagre share price gains suggest the market remains apprehensive over credit card companies, even high-end ones. At the top of investors’ concerns are credit quality, higher funding costs, and rising expenses.
Of these, credit quality looks to be the lesser worry. Borrowers at least 30 days behind in their loan payments increased slightly to 1 per cent from 0.7 per cent a year ago. The company also increased its loan loss reserves by $617mn. But keep in mind these credit reserves end up getting released if loan delinquencies stay low.
New card accounts grew by 12.5mn at Amex last year. That did not come cheap. Total expenses rose 24 per cent to $44.1bn last year. Within this, rewards for customers increased 27 per cent while spending on services for members was 48 per cent higher. Amex will need to make sure it does not get carried away in the fight for cardholders if it hopes to boost its share price.
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