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Stacey Vanek-Smith: American Express reports earnings later today. We’ve heard a lot about credit cards getting hammered by defaults. So will AmEx and others see the same success the banks have? Alisa Roth takes a look.
Alisa Roth: Analysts say we can expect good news from American Express this afternoon. Or more to the point, less bad news.
Kate Fitzgerald is an editor at the trade publication Cards & Payments. She says American Express looks a lot like the rest of the industry.
Kate Fitzgerald: We’re starting to see losses start to level off and improve. It doesn’t mean they’re in good territory. It means they’ll still be way way higher than they were a year ago.
Credit-card companies earn money a lot of different ways: they charge retailers a percentage of each transaction, they charge cardholders interest, and they tack on annual fees.
But the biggest way the card companies lose money is when cardholders default on their credit lines. In August, there were record numbers of so-called charge-offs. Those are the loans that credit-card companies figure won’t be paid back.
American Express used to be insulated from a lot of this. Because it didn’t offer revolving credit. And it only issued cards to relatively affluent consumers. That changed a few years ago when they opened up their business to just about everybody.
Fitzgerald: Those are just average consumers that were hit by average economic trends and it caused their charge-off rates to go up just like everybody else.
AmEx earnings come out this afternoon, after the closing bell.
In New York I’m Alisa Roth for Marketplace.