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American Express Reports Rising Defaults

Even affluent customers fall behind on their bills

By Martin H. Bosworth
ConsumerAffairs.com

July 22, 2008

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Even affluent, credit-worthy consumers are feeling the pinch of a sour economy. The evidence comes in the latest quarterly earnings report from American Express.

The blue chip credit card company shocked Wall Street yesterday when it reported sharply lower second-quarter earnings because of rising defaults. The company's profit plunged 37 percent, forcing it to add $600 million to its reserves to cover loan losses.

A softening economy also had impact. CEO Kenneth Chenault, on his company's conference call, noted that rising unemployment and a decline in both home prices and consumer confidence had contributed to a business climate that was "much weaker" than earlier forecasts had assumed.

Chenault says the economic slowdown now appears to be impacting more affluent consumers with healthy credit scores, not just those holding subprime mortgages. American Express had more uncollectible loans than expected during the April-June quarter.

"We are seeing very affluent people who have had historically very, very strong spending history with us cutting back," Chenault said.

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