AmEx and Wachovia Post Disappointing Earnings After Rosy Bank Results

It couldn’t last forever.

Major U.S. banks Citigroup and Bank of America this week reported second quarter results that beat expectations – but were still significantly lower than last year (“Credit Card Charges Hit Bank of America and Citi in Second Quarter,” July 21). Their news followed very similar results from massive card issuers Capital One and JPMorgan Chase (“Bank Roundup: UBS to Quit Some U.S. Services; Cap One and JPMorgan Beat Expectations,” July 18).

But two more consumer banking giants, American Express Co. (NYSE: AXP) and Wachovia Corp. (NYSE: WB), have reported second quarter results in the past 24 hours that Wall Street did not like.

Elite credit card issuer American Express said Monday that net income dropped 38 percent in the second quarter of 2008. The company reported that it earned $653 million, or 56 cents a share, compared to $1.06 billion in Q2 2007. Analysts had expected earnings of around $0.83 per share.

American Express shares fell about 10 percent in after-hours trading late Monday and through midday trading Tuesday.

It wasn’t the results that set off investors, it was the commentary from management. "We do not expect to meet or exceed our long-term financial targets until we see improvements in the economy," Kenneth Chenault, CEO of American Express, said in a press release.

Charge-offs and delinquencies, even among its most affluent customer segment, were up for American Express. The company said it charged off 5.3 percent of loans during the second quarter, up from 4.3 percent in the first quarter and 2.9 percent in the Q2 2007.

Wachovia reported a massive second quarter loss of $8.66 billion early Tuesday. The company has reported net earnings of $2.34 billion in the second quarter of 2007.

"These bottom-line results are disappointing and unacceptable," said Chairman Lanty L. Smith in a press release. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."

Net charge-offs leapt to 1.10 percent of total loans from 0.66 percent in the first quarter and 0.14 percent in Q2 2007. The delinquency rate increased to 2.41 percent from 1.70 percent in the first quarter.

Wachovia also announced that it was slashing its dividend to conserve cash. The company is also embarking on a cost-cutting program that will result in the cut of more than 10,000 jobs.