AmEx Pays Some Cardholders $300 to Close Accounts – Bloomberg

 

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By Hugh Son – Bloomberg

 

Feb. 23 (Bloomberg) — American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders $300 each to close accounts so the lender can reduce the risk of defaults as the recession deepens.

People who got the offer to “simplify” their finances must pay off their entire credit-card balance by April 30, according to New York-based American Express. Enrolling in the program cancels a customer’s account and may lead to forfeiture of reward points or rebates, the company said on its Web site.

“What AmEx is trying to do is move to the front of the line in terms of getting paid back” by customers who owe debts to multiple lenders, said Michael Taiano, an analyst at Sandler O’Neill & Partners with a “hold” rating on the company. “They clearly grew loans faster than their competitors in the years leading up to this financial crisis.”

Chief Executive Officer Kenneth Chenault is shedding customers as rivals reduce credit lines, raise interest rates and cut back on mail solicitations to brace for future losses. The industry’s defaults are set to break records and may reach as high as 11 percent by year-end in a stress scenario, reducing American Express’s annual profit by about 40 percent, according to Brian Foran, an analyst at Goldman Sachs Group Inc.

‘Select Cardmembers’

“This is an offer we made to select cardmembers to incent them to help pay down their balance,” said Molly Faust, an American Express spokeswoman, in a telephone interview today. Faust declined to say how the company picked which customers qualify for the offer.

Consumers are falling behind on credit-card payments as U.S. unemployment reached 7.6 percent last month, the highest rate since 1992.

Charge-offs, or loans that American Express deemed uncollectible, rose to 8.29 percent in January from 7 percent the month earlier, while payments at least 30 days overdue climbed to 5.28 percent from 4.86 percent, the company said last week in a filing for debt packaged into securities.

American Express, which got $3.39 billion from the U.S. Treasury to boost capital, said last month that fourth-quarter profit from continuing operations fell 72 percent to $238 million as more consumers defaulted.

The company blamed the charge-offs on faster loan growth than competitors in the past two years and a larger customer base in California and Florida, states hard hit by the housing bust, Chief Financial Officer Dan Henry said last month.

The $300 comes on a prepaid card that can be used anywhere American Express is accepted, the company said. The promotion was reported earlier by CreditMattersBlog.com.

American Express slipped 82 cents, or 6.3 percent, to $12.15 at 4:15 p.m. in New York Stock Exchange composite trading. The company has declined 73 percent in the past year.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: February 23, 2009 16:43 EST

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