AmEx Write Offs Rise but Cardholders Remain Top Drawer

The U.S. card division of American Express Co. had managed net write offs of 4.3 percent in the first quarter, the lowest rate compared with major credit card issuers such as Discover and JPMorgan Chase, each with 4.4 percent, Bank of America with 5.7 percent, Citi with 5.8 percent, and Capital One with 5.9 percent, AmEx Chairman and CEO Kenneth I. Chenault told investors at the Keefe, Bruyette & Woods 2008 Diversified Financials Conference today.

But all is not rosy. AmEx’s net write off rate rose by 90 basis points in the first quarter from the fourth quarter of 2007, said Chenault.

And the difficult economic environment will “negatively impact our spend growth and our loss metrics over the near term,” he said, noting that second quarter write off rates will rise and that growth in the U.S. market will slow.

AmEx consistently has fewer losses than its competitors because of its premium card member base, its risk management capabilities and the high percentage of cardholders that participate in its rewards program, Chenault said. These cardholders spend more, have better credit and are less likely to leave the program.

AmEx cardholders generally have higher FICO scores, the widely used index for a consumer’s credit quality developed by Fair Isaac Co. Consumers with FICO scores less than 660 make up 12 percent of AmEx’s charge card base, and 17 percent of its credit card base, according to Chenault’s presentation. In contrast, 29 percent of both BoA and Cap One cardholders have a FICO score of 660 or less.

On the flip side, two-thirds of AmEx charge cardholders have FICO scores of 720 or higher, compared with 43 percent of Cap One cardholders and 35 percent of BofA cardholders. The average FICO score of an AmEx charge cardholder rose to 733 in the first quarter, up from 690 in 2004.

AmEx cardholders had a 23.7 percent share of US purchase volume in 2007, up from about 20 percent in 1999, according to the Nilson Report, a trade publisher that follows the payments industry.