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News > Companies
Amex to cut more jobs
July 18, 2001: 9:39 a.m. ET

Loss on high-yield corporate debt to sink profit, lead to job cuts, charges
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NEW YORK (CNNfn) - Financial services company American Express Co. said Wednesday that new investment losses will reduce second-quarter profit by 76 percent and that it will cut another 4,000 to 5,000 jobs as it tries to respond to what it says is a weakening economic outlook.

The warning sent shares of American Express (AXP: Research, Estimates) down $1.78 to $37 in pre-market trading on Instinet following a gain of 42 cents in Tuesday trading.

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The company said losses in its high-yield portfolio, the higher-risk debt from borrowers with less than top credit ratings, will reduce earnings by about 76 percent from the $740 million, or 54 cents a share, it earned a year earlier. That calculates out to about $178 million, or about 13 cents a share. Analysts surveyed by earnings tracker First Call had forecast earnings per share of 53 cents.

American Express said defaults in the corporate bond market will continue at high rates through next year. As a result, it will accelerate a restructuring program, cutting an additional 4,000 to 5,000 jobs on top of the 1,600 job cuts already announced. It expects to take a charge of between $200 million and $240 million after taxes as a result of the new cuts.

"The actions we announced today are being taken to ensure that we're in a strong position to navigate through what we expect to be a longer period of economic weakness," CEO Kenneth Chenault said.

Amex said it will take a $537 million after-tax charge to deal with the portfolio losses, as well as a rebalancing of its portfolio. It said that after the rebalancing, high-yield securities will be about 7 percent of the portfolio of its American Express Financial Advisors unit, compared with 10 to 12 percent currently.

It said that without the charge for the investment loss the company would post earnings per share of 53 cents, matching analysts' forecasts. But Joe Cooper of First Call's research department said he doubts analysts will exclude the charge when considering earnings.

The staffing cuts will include consolidating or outsourcing certain data processing activities and reducing staff in the technologies group, as well as relocating certain finance, operations and customer support functions to lower-cost overseas locations. It also will try to move some job functions to the Internet to reduce staffing needs.

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American Express warned of the same type of problem with high-yield losses in April, which sent first-quarter profits and American Express shares sharply lower.

American Express shares rose 42 cents to $38.78 Tuesday. graphic

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.