American Express reports robust Q4 profits despite concerns over rising balances and delinquencies

American Express announced a substantial 23% surge in fourth-quarter profits compared to the previous year, attributed to an increased number of cardmembers maintaining balances on their accounts, resulting in higher interest income for the credit card issuer.

The New York-based company disclosed a profit of $1.93 billion, or $2.62 per share, up from $1.57 billion, or $2.07 per share, in the same period the previous year. However, the per-share earnings fell short of analyst expectations, standing at $2.64, according to FactSet.

While the company experienced a notable 17% rise in maintained balances compared to the previous year, concerns were raised regarding the potential impact on the financial health of AmEx cardmembers. The uptick in delinquencies and credit losses may pose questions, especially given that AmEx cardmembers are typically financially stable and more inclined to pay off balances monthly.

Despite the concerns, AmEx provided an optimistic full-year forecast for 2024 and increased its quarterly dividend, contributing to a positive trend in midday trading on Friday.

The quarter witnessed a modest 5% increase in spending by cardmembers, totaling $434.4 billion. Historically reliant on revenue from merchant fees, the credit card company has seen a shift in its revenue streams. AmEx has successfully encouraged customers to maintain a balance, leading to interest income from accounts that traditionally paid in full.

At the close of 2023, AmEx held $126 billion in cardmember loans, reflecting a 17% increase from the previous year. The interest revenue surged to $4.91 billion in the last quarter, compared to $3.62 billion a year earlier.

However, the strategic shift toward allowing cardmembers to carry balances has resulted in a rise in delinquent credit card accounts. The company wrote off 2.2% of credit card balances last quarter, a significant increase from 1.3% in the previous year, while the number of accounts that are 30 days past due also experienced an uptick.

Looking ahead, AmEx anticipates revenue growth between 9% and 11% for the current year, with expected earnings per share ranging from $12.65 to $13.15.